Meta's Earnings Streak Continues as Ad Business Performs

META Q2 Earnings Deliver the Goods

Zacks Rank #1 (Strong Buy) stock Meta Platforms (META) crushed earnings yet again on Wednesday evening, delivering EPS of $7.14 versus estimates of $5.89 and revenue of $47.52 billion versus estimates of $44.83 billion. Currently, META shares are up ~8.5%, in line with what the market was anticipating. The top and bottom-line earnings beat again prove that META is one of the most consistent growth engines on Wall Street, with investors enjoying the company’s eleventh consecutive earnings beat.

With double-digit EPS and revenue growth, it’s difficult for investors to find a company growing as fast, consistently, and with such liquidity as META. Because META has this rare trifecta, institutional investors are likely to continue to pile in and use it as a ‘hedge fund hotel.’

META Ad Business Remains Robust

The most significant item investors watch for in a Meta earnings report is ads. Not only does ad revenue comprise the lion’s share of Meta’s revenue, it also represents how Meta’s massive AI bets are actually impacting the company. Ad impressions continued to increase in Q2, as impressions jumped 11% year-over-year, helped by Meta’s AI optimization efforts. Additionally, Meta is making more off these impressions, with an average price per ad increase of 9% year-over-year. Overall, the core advertising engine is firing on all cylinders, with Meta generating 22% year-over-year growth in the segment.  It’s clear from Meta’s price action over the past few months that investors believe CEO Mark Zuckerberg’s massive pivot to AI will work in the long term. As META shares break out from yet another base structure, a reasonable target into 2026 is between $900 and $1,000 per share (based on Fibonacci extensions).

META: Potential Headwinds

Management has guided that expense growth will accelerate next year with a substantial CAPEX increase, potentially impacting margins negatively. Additionally, Meta’s ‘Reality Labs’ segment continues to hemorrhage cash, continuing a troubling trend and costing the company $4.5 billion. While Reality Labs’ poor financial performance is something for investors to watch, it is merely a drop in the bucket of Meta’s massive business, and investors should mainly focus their attention on Meta’s core ad business.

META: What to Look for Moving Forward

From a CAPEX spending perspective, META is among the companies making the most aggressive bets on AI. CAPEX is expected to increase yet again next quarter. Thus far, investors are applauding the bold strategy and aggressive spending. That said, investors will want to continue to see strong earnings as a result.

Bottom Line

Meta Platforms continues to demonstrate exceptional financial performance, driven by its robust ad business and significant AI investments.

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

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