Investors are gearing up for a pivotal Thursday, marked by the release of fourth-quarter earnings for three trillion-dollar giants – Meta Platforms (META), Apple (AAPL), and Amazon (AMZN). META stock experienced a remarkable 2023, witnessing a surge of 194%, marking its best annual return. This rally came on the heels of a turbulent 2022, during which the shares plummeted by two-thirds amidst a wider tech sell-off.
Following a year-on-year revenue decline in 2022, Meta CEO Mark Zuckerberg dubbed 2023 as the “year of efficiency.” Swift endorsement from markets, in response to the company’s aggressive cost-cutting, propelled the stock to outperform FAANG peers and secure the second-best performance in the S&P 500 Index after Nvidia (NVDA), the first trillion-dollar chip designer driven by the artificial intelligence (AI) wave.
On the brink of the tech earnings flurry on Thursday, Alphabet (GOOG) and Microsoft (MSFT) have been trading lower post their respective quarterly reports, failing to meet market expectations despite beating headline metrics. This sets the stage for Meta’s Q4 earnings and the possibility of a new tactical shift by Zuckerberg.
Meta Q4 Earnings Preview
Analysts are estimating Meta to post revenues of $39.17 billion for Q4, reflecting a 21.8% increase from the same quarter last year. Notably, in their Q3 earnings call, Meta projected Q4 revenues between $36.5 billion and $40 billion, with a wider-than-usual range in light of the escalating volatility due to the Israel-Hamas war in Q4.
On average, analysts anticipate a 61.3% rise in Meta’s earnings per share for Q4, bolstered by the company’s continued aggressive cost-cutting measures.
More than the headline figures, Meta’s outlook commentary for Q1 will hold immense significance, given the adverse market reaction to their Q3 guidance. Additionally, investors will be keen for insights on the losses in Meta’s Reality Labs segment, crucial for building the metaverse. Despite Zuckerberg championing the metaverse’s pivotal role in long-term growth, it continues to grapple with persistent losses, encroaching upon the substantial profits yielded by its core advertising business.
Analysts’ Optimism for Meta Heading into Q4 Report
Wall Street analysts have expressed bullish sentiments towards Meta stock ahead of the Q4 report, with KeyBanc analyst Justin Patterson raising the stock’s target price to $465, just shy of the street-high target of $470. Evercore ISI and BofA also convey positivity for Meta stock, with over 90% of analyst coverage rating it as “Strong Buy” or “Buy.” This marks META as the second highest-rated FAANG stock, trailing only Amazon.
Following Meta’s resurgence into the $1 trillion club, the stock currently trades slightly above its mean target price. The upcoming Q4 report may prompt more analysts to revise their target prices for META, a pattern observed over the last few earnings calls.
What Could Drive the Next Leg of Meta’s Rally?
Last year’s Meta stock rally was fueled by cost cuts, driving an earnings surge and an expansion in valuation multiples. The 12-month price-to-earnings multiple gradually rose to 23.1x, surpassing the average multiple for the previous five years. While still the most economical FAANG stock by this metric, Meta has historically traded at a discount compared to its tech peers. The potential for another surge in META’s rally hinges on groundbreaking initiatives akin to the 2023 cost reductions. AI emerges as a possible catalyst for growth, evident from the tone of the Q3 earnings call, even though Zuckerberg refrained from explicitly terming 2024 as the “year of AI.”
The metaverse also holds promise but sits years away from monetization, currently weighing on the company’s overall profitability. META’s Q4 earnings call comments on strategies to sustain bullish sentiment post the 2023 efficiency drive will be a key area of focus for investors.
