Investors are gearing up for a busy Thursday as three trillion-dollar giants – Meta Platforms (NASDAQ:META), Apple (NASDAQ:AAPL), and Amazon (NASDAQ:AMZN) – are set to unveil their quarterly earnings after the closing bell. Meta’s performance in 2023 was outstanding, marking its best-ever annual return with a remarkable 194% gain. This surge followed a challenging 2022 when Meta’s shares experienced a substantial decline of around two-thirds amid a broader tech sell-off.
In response to a year-over-year decline in revenues in 2022, CEO Mark Zuckerberg dubbed 2023 as the company’s “year of efficiency.” The market responded positively to Meta’s aggressive cost-cutting measures, making it not only outperform its FAANG peers but also secure the second-best position in the S&P 500 Index for 2023, trailing only Nvidia.
As the market anticipates a flurry of tech earnings this Thursday, Alphabet (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT) are currently trading lower following their quarterly reports, which failed to meet market expectations despite beating headline metrics. The focus now shifts to Meta’s Q4 earnings and whether Zuckerberg has a new strategy up his sleeve, considering that the “year of efficiency” narrative may have reached its peak.
Meta Q4 Earnings Preview
Analysts project Meta to report Q4 revenues of $39.17 billion, reflecting a 21.8% increase compared to the same quarter last year. During the Q3 earnings call, Meta provided guidance indicating a revenue range between $36.5 billion and $40 billion for Q4, with the midpoint falling below the $38.9 billion expected by analysts. The company’s CFO, Susan Li, attributed the wider guidance range to increased volatility coinciding with the start of the Israel-Hamas war in Q4.
On average, analysts anticipate a 61.3% year-over-year increase in Meta’s earnings per share for Q4, benefiting from the ongoing aggressive cost-cutting measures.
Apart from the headline numbers, investors will closely watch Meta’s comments on the Q1 outlook, considering that the stock faced a decline after the Q3 earnings release due to guidance concerns. Additionally, attention will be on commentary regarding losses in the Reality Labs segment, responsible for building the metaverse. Despite Zuckerberg’s emphasis on the metaverse’s importance for long-term growth, persistent losses in this segment have offset the substantial profits generated by Meta’s core advertising business.
Analysts Bullish on Meta
Wall Street analysts express bullish sentiments toward Meta stock ahead of the Q4 report. KeyBanc analyst Justin Patterson raised the stock’s target price to $465, just below the Street-high target of $470. Evercore ISI and BofA also maintain a positive outlook on Meta heading into the earnings report. Over 90% of analysts covering Meta stock currently give it a “Strong Buy” or “Buy” rating, making it the second highest-rated FAANG stock, trailing only Amazon.
Driving the Next Leg of Meta’s Rally
Cost-cutting measures played a crucial role in Meta’s stock rally last year. Alongside earnings growth, the rally was fueled by an expansion of its valuation multiples, with the next 12-month price-to-earnings multiple reaching 23.1x – slightly higher than the average for the last five years.
While Meta remains the cheapest FAANG stock based on this metric, historical trends show it trading at a discount to its tech peers. To sustain its rally, Meta might need innovative steps similar to the 2023 cost cuts. AI is identified as a potential growth driver, with the company viewing it as a key short-term catalyst. Although Zuckerberg hasn’t explicitly labeled 2024 as the “year of AI,” hints from the Q3 earnings call suggest a strategic focus on AI.
The metaverse represents another growth avenue, but its monetization is still years away, currently impacting Meta’s overall profitability. Analysts will closely listen to Meta’s Q4 earnings call for insights into how the company plans to maintain positive momentum after the remarkable progress in 2023 during the “year of efficiency.”
Featured Image: Unsplash
Author Faith Yakubu 
