The Q1 earnings season is heating up, and Meta Platforms (META) will release its earnings after the bell today. The Facebook parent’s earnings are coming a day after fellow “Magnificent 7” constituent Tesla (TSLA) impressed markets with its Q1 earnings, sending its stock up by over 12% in pre-market trading this morning. Meta's FAANG peer Netflix (NFLX), on the other hand, crashed following its earnings last week. Can Meta stock rise to hit record highs after the Q1 earnings release, or will it plummet like Netflix? We’ll discuss in this article.
When it comes to 2024 price action, Tesla and Meta are almost at opposite ends of the pole. With its YTD gains of over 40%, Meta is among the top five S&P 500 Index ($SPX) gainers - while Tesla is stacked at the bottom, with a 2024 loss of almost 42%. This is based on yesterday’s closing prices, and while Tesla stock’s YTD performance might improve by the close today, it remains in the red.
That said, this YTD price action also bakes in the market's higher expectations for Meta - as was the case with Netflix.
Meta Q1 Earnings Preview
Analysts expect Meta to report revenues of $36.2 billion in Q1, a YoY rise of 26.5%. During their Q4 earnings call, Meta forecast revenues between $34.5 billion to $37 billion for the first quarter. The company’s guidance was well ahead of estimates, which - coupled with an earnings beat - helped to trigger a massive rally in Meta stock, and it rose to record highs following the release.
Wall Street expects Meta’s Q1 earnings per share (EPS) to rise 63% YoY to $4.32. Its full-year EPS is expected to rise 35.7%. However, after strong earnings growth in 2023 and 2024, analysts expect Meta’s 2025 EPS growth to be just above 15%.
Meta Faces Tougher Comps Going Forward
Like many of its peers, 2022 was a tough year for Meta, and it reported its first YoY fall in revenues ever since it went public. The broad-based sell-off in tech stocks that year, coupled with Meta’s dismal financial performance, triggered a 64% drawdown in shares. However, not only did Meta’s top-line growth rebound in 2023, but a relentless focus on cost cuts as part of the “year of efficiency” led to a 73% rise in EPS.
Markets rewarded Meta stock for its strong earnings performance, and the stock almost tripled in 2023 - making it the second-best performing Magnificent 7 stock, right after Nvidia (NVDA). Meta also announced a $50 billion share buyback and initiated a dividend during the Q4 earnings call, as its cash flows swelled in 2023.
That said, Meta had the advantage of lower comps in 2023. In the coming quarters, it will not only face tougher comps, but its expenses are also set to rise, as it expects payroll and infrastructure-related costs to climb in 2024. It also predicted higher losses in its Reality Labs segment, which is building the metaverse.
Speaking of top-line growth, last year Meta benefited from higher ad spending by China-based advertisers, as well as Reels monetization. This also sets a high bar for its revenues in 2024.
What to Watch in Meta’s Q1 Earnings Release
As Meta prepares to release its Q1 earnings, here’s what I would watch for in the company’s earnings call.
- Q2 guidance and commentary on the digital ad market: Analysts expect Meta’s Q2 revenues to rise 19.8% YoY. During the Q1 earnings call, I would watch out for Meta’s Q2 guidance, as well as its comments on the digital ad market landscape – especially on China-based advertisers trying to reach consumers in the West, a segment that was a key driver of its 2023 growth.
- AI initiatives: Meta doubled down on its AI initiatives last year, and during the upcoming earnings callk it might provide more color on how it’s using AI to improve ad efficiency.
- The next big idea: With the “year of efficiency” now pretty much in the rearview, Meta needs the next big idea - especially as its top-line and bottom-line growth are expected to fall steeply in 2025.
Meta Stock Forecast: Can It Hit Record Highs?
Amid the stellar rally in Meta stock, some analysts are cautious ahead of the Q1 report. KeyBanc analyst Justin Patterson lowered his target price by $20 to $555, even while reiterating his “overweight” rating.
“In contrast to 4Q, we are more cautious that revenue guidance can positively surprise,” said Patterson in his note. There is also the ominous comparison with Netflix, which plunged after its Q1 earnings last week.
According to Evercore ISI analyst Mark Mahaney, while Meta has some valuation support, it still needs to justify its YTD rally with the earnings. He added, “Basic point is that a clear beat-and-raise may be required for Meta to simply maintain its current price level. The bar is high."
Wall Street overall is quite bullish on Meta stock, though. It has a consensus rating of “Strong Buy,” although its mean target price of $523.25 is just 5.4% above yesterday’s closing prices.
Whether Meta sets another record high following the Q1 earnings, or markets punish it like Netflix, will eventually depend on whether it can come up with an impressive set of numbers in Q1. However, I would side with Mahaney and reiterate that the bar is quite high for Meta – just like it was for Netflix.
On the date of publication, Mohit Oberoi had a position in: META , TSLA . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.