• Meta platforms to report decent annual growth in Q1

• How will the US election influence revenue from advertising?

• Meta stock is not overvalued, but needs promising AI guidance to rally  

Earnings from the US Magnificent seven will start rolling in within the coming weeks, with Meta platforms, the parent company of Facebook and Instagram scheduled to report its first quarter financial results on Wednesday April 24 after the US market closes.

Despite ongoing legal battles and social concerns, the social media behemoth convinced investors of a brighter future after a year of cost-cutting and layoffs. The management shifted its resources towards artificial intelligence expertise and developed its own formula for success, which, combined with Zuckerberg’s enthusiasm for AI technology, positive earnings data, a $50 billion share buyback, and the introduction of a quarterly dividend of 50 cents, resulted in a fruitful period on Wall Street.

Meta’s market cap ran past $1 trillion, and its stock unlocked a new all-time high, being the second-best performer after Nvidia among the US magnificent seven and the fourth strongest stock in the S&P 500 universe in 2024 (+ 40% year-to-date, + 142% year-on-year).

The next quarterly report could be another success in terms of data. Despite forecasts for a quarterly slowdown from $40bln to $36bln, revenue is expected to come in 26% higher compared to the same period last year, marking its largest expansion in more than two years. Recall that Meta’s Q1 revenue projection is $34.5bln-$37bln.

Earnings per share (EPS) could decline to $4.32 from $5.33 in Q4 but come in almost twice as high as the Q1 2023 reading of $2.20.

Across business segments, it would be interesting to see if the reality lab sector managed to stay in the expansion area, maintaining a 40% revenue growth after previously contracting for five quarters.

However, the advertising industry may attract more attention, especially as it tends to benefit greatly during election seasons. According to Reuters, US political ad spending could surge by 30% from 2020 mainly driven by digital platforms, with analysts projecting Meta’s advertising to total at $154bln in 2024 compared to $131bln in 2022 and $84bln in 2020. Besides, the AI-powered automated business tools could take creativity and search effectiveness to the next level in the coming years. Therefore, Meta’s digital ad sales could remain a key growth driver in the short-term.

The number of Facebook’s active daily users and new subscriptions will be closely watched following the introduction of ad-free payments amid competition from platforms like TikTok. At the start of the year, the group of social media platforms had hit nearly four billion people.

Last week, the company officially welcomed Llama 3 into their family of large language models. The new version will be integrated into assistant features on Facebook, Instagram, WhatsApp, and Ray-Ban smart glasses, but unlike OpenAI, it will be open source and accessible through Google cloud, AWS, and other platforms.

Users might notice enhanced reasoning, faster service, inspiration, and potentially enjoy multilingual communication in the future. Yet, this is the start, according to the explorer of Modern AI and Meta’s chief Ai scientist LeCun, who revealed that a more powerful successor is underway. Hence, investors might have set the bar high, and Meta will have to deliver a more ambitious guidance, or at least reveal some early AI financial rewards to trigger another impressive stock rally.

It’s worth mentioning that a couple of hedge funds and institutional investors have purchased new positions in Meta platforms and some of them have even increased their price objective to $600, with Refinitiv analysts giving the stock a buy rating.

Given Meta’s relatively cheaper valuation when compared to its Magnificent seven peers, a notable rebound is likely if the management announces another upbeat earnings report and pledges more AI wins on Thursday. The pre-FOMC blackout period has already started. Therefore, despite Powell signalling a potential rate cut delay in June, Fed speakers will not disturb stock markets before the central bank’s two-day meeting concludes on May 1.

Technically, Meta’s stock paused its two-week downfall near the $475 support area and around the 50-day exponential moving average (EMA), which has been a critical pivot area since the summer of 2023. That increases the odds for a rebound, though for the market to attract new buyers it must advance above the $512-$533 resistance zone and then climb the ascending line from March 2023 near $560 in order to meet the next obstacle within the $590-$600 territory.

Alternatively, if Zuckerberg outlines costs challenges and calls for some patience before AI generates big revenue, the stock could extend its decline to $440, where the support trendline from October 2023 is placed. Additional declines from there could test the $400 psychological mark ahead of the 200-day EMA at $385.