This Thursday should be a whirlwind for investors as Meta Platforms (META), Apple (AAPL), and Amazon (AMZN) prepare to release their quarterly earnings after the bell. Meta’s performance in 2023 saw a noteworthy surge, with a whopping 194% gain, marking its best-ever annual return. This phenomenal growth came on the heels of a dismal 2022, during which the shares lost around two-thirds of their value amid a broader tech sell-off.
After witnessing a YoY revenue decline in 2022, its first as a public company, Meta declared 2023 as its “year of efficiency.” Following aggressive cost-cutting measures, the stock not only outperformed its FAANG peers by a significant margin but also emerged as the second-best performing S&P 500 Index stock of 2023, trailing only behind Nvidia, which rode the artificial intelligence (AI) wave to become the first trillion-dollar chip designer last year.
As investors gear up for a flurry of tech earnings this Thursday, both Alphabet (GOOG) and Microsoft (MSFT) are trading lower after their respective quarterly reports failed to impress the market. The big question is: what lies ahead for Meta as they prepare to unveil their Q4 earnings?
Meta Q4 Earnings Preview
Analysts anticipate Meta to report revenues of $39.17 billion in Q4, a 21.8% increase from the corresponding quarter last year. During their Q3 earnings call, Meta stated an expectation to post revenues of $36.5 billion to $40 billion in Q4, slightly below the $38.9 billion anticipated by analysts. The wider guidance range was attributed to increased volatility since the beginning of Q4, coinciding with the start of the Israel-Hamas war.
On average, analysts expect Meta’s earnings per share to rise by 61.3% in Q4, fueled by the company’s aggressive cost-cutting measures.
A considerable focus will also be placed on Meta’s commentary regarding the Q1 outlook, given that the stock faltered after the Q3 earnings release due to disappointing guidance. Additionally, investors will be keen for insight into losses in the company’s Reality Labs segment, which is instrumental in building the metaverse.
Despite touting the metaverse as vital to the company’s long-term growth, Meta has been grappling with persistent losses in this segment, affecting the substantial profits generated by its core advertising business.
Analysts Are Bullish on Meta Heading into Q4 Report
Wall Street analysts hold an optimistic outlook on Meta stock leading up to the Q4 report. KeyBanc analyst Justin Patterson raised his target price on the stock to $465, just shy of the highest Street target price of $470. Evercore ISI and BofA also express confidence in Meta stock pre-earnings report.
The overall analyst sentiment towards Meta stock is quite upbeat, with over 90% of those in coverage rating it as a “Strong Buy” or “Buy.” Currently, META stands as the second highest-rated FAANG stock behind Amazon.
Following a recent uptick in Meta shares – it recently re-entered the $1 trillion club – the stock is trading marginally above its mean target price. Anticipation is high for potential upgrades in Meta’s target price following the Q4 report, aligning with patterns observed in previous earnings calls.
What Could Drive the Next Leg of Meta’s Rally?
Cost-cutting measures were instrumental in fueling Meta’s stock rally last year. The rise in earnings was also complemented by an expansion of its valuation multiples, gradually increasing the next 12-month price-to-earnings multiple to 23.1x, slightly higher than the average multiple over the past five years.
Although Meta remains the cheapest FAANG stock based on this metric, it historically traded at a discount compared to its tech peers. To sustain the next phase of its rally, Meta may need innovative steps similar to the impactful cost cuts of 2023. AI is a potential avenue that could drive growth for Meta, as the company views AI as a key short-term driver.
The metaverse could also be a significant driver, although monetization is still years away and currently weighs down the company’s overall profitability. Investors eagerly await Meta’s Q4 earnings call for insights into how the company plans to maintain bullish sentiment following the remarkable progress during 2023, attributed to the “year of efficiency.”