Meta Platforms Q2 EPS Preview: AI Takes Center Stage

Meta Platforms (META) is the world’s leading and largest social media platform. The company has evolved from owning a single Facebook application in its early days to becoming a social media powerhouse through the acquisitions of photo and video sharing app Instagram and the globally popular messaging app WhatsApp today. META’s family of products is used by more than three billion people worldwide, and the stock currently sports a best-possible Zacks Rank #1 (Strong Buy).

Meta Q2 EPS Cheat Sheet

Meta Platforms will report earnings after the market close on Wednesday, July 30^th. Below are some things for investors to know before the report:

META Wall Street Expectations:

·       Revenue: Wall Street estimates suggest that second-quarter revenue will jump to $44.55 billion, representing a year-over-year increase of ~14%.

·       Earnings Per Share (EPS): Analysts expect META to generate EPS of $5.84.

META Implied EPS Move & Historical Performance

·       Implied EPS Move: Using the options chain for next week’s options expiration, the options market suggests an implied post-earnings move of +/- ~8.64%.

·       Post-EPS Stock Performance: Over the past ten quarters, META has gained an average of ~6.6% on the day following earnings.

·       EPS Performance vs Expectations: META has surpassed Zacks Consensus Analyst Estimates for ten consecutive quarters. Over the past four quarters, META has beaten these expectations by an average of 17.30%.

·       Year-to-date Stock Performance: META shares have outperformed the S&P 500 Index recently, gaining 21.9% versus the S&P 500’s 7.70%.

·       Top-and-Bottom Line Growth: META has delivered steady top-and bottom-line growth, which is expected to continue into next year.

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META EPS: AI in Focus

META CEO Mark Zuckerberg believes the AI revolution is real and that his company can win it. The company plans to allocate as much as $72 billion in capital expenditures (CAPEX) in 2025, with the majority of this amount being spent on AI infrastructure. Additionally, META has made headlines recently for offering exorbitant $100 million pay packages to poach top AI talent from Alphabet (GOOGL), Microsoft (MSFT), and other top tech firms. A recent report also suggests that Meta offered a leading AI expert $1.25 billion over a four-year period!

META: AI Drives Ad Revenue

Though META has its ‘Llama’ large language model (LLM), the primary way the company has leveraged AI is through advertising. META has been testing a new AI-powered ad recommendation model for Reels (Meta’s short-form video feature) that has improved its conversion rate by 5%. In addition, improvements in AI-powered recommendation systems have led to a 7% increase in time spent on Facebook and a 35% increase on Threads. Instagram’s ‘TikTok’-like ‘Reels’ has been a powerful segment. AI recommendations have driven a 24% increase in time spent on Instagram.

Can Meta Monetize WhatsApp?

WhatsApp, the world’s most popular messaging app, is another key segment worth watching for Meta. Like its other platforms, Meta is introducing AI tools to drive revenue and optimize the customer experience. The social media giant is adding channel subscriptions and promoted channels to monetize the gargantuan 1.5-billion-person user base.

Musk Takes Aim at Reels

Tesla (TSLA) CEO and ‘X’ owner Elon Musk stated that, “We’re bringing back Vine, but in AI form.” Vine was once a wildly popular short-form video platform that was later shut down. While TikTok and Instagram’s ‘Reels’ dominate the short-form video platform market, Musk’s ambitions are always worth watching. Nevertheless, Instagram maintains a firm grip on a large share of the market, which is unlikely to be disrupted anytime soon.

Bottom Line

AI integrations are helping to drive user engagement and ad revenue for social media juggernaut Meta Platforms. However, CEO Mark Zuckerberg will need to convince investors on the Meta EPS call that the billions in CAPEX spending will be worth it for investors.

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This article originally published on Zacks Investment Research (zacks.com).

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