Benzinga - by Surbhi Jain, .
Meta Platforms Inc (NASDAQ:META) reported its first-quarter 2024 earnings, revealing a revenue of $36.45 billion, which surpassed analyst estimates.
Despite this positive revenue performance, Meta Platforms’ shares declined by 15% in after-market trading due to lower-than-expected revenue in the first quarter and a slightly disappointing outlook for the second quarter, coupled with increased expenses and capital expenditure forecasts for 2024.
Read: Meta Platforms Stock Is Tumbling Thursday: What’s Going On?
Meta expects operating losses for its Reality Labs division to significantly rise year-over-year. Mark Zuckerberg, Meta’s founder and CEO, expressed optimism, citing progress in AI development and metaverse building efforts.
Here’s what analysts have said about the earnings report.
JPMorgan On Meta Analyst Doug Anmuth reiterated his Overweight rating on Meta while reducing the price target from $535 to $480 a share.
“Meta is more optimistic & ambitious on AI than ever, and believes it can become the leading AI company in the world,” said Anmuth.
To this end, Meta’s management anticipates challenges in the coming months, including tough comparisons from 2023 regarding China advertiser spending, Reels monetization and engagement trends. Despite these challenges, Meta remains optimistic about its AI initiatives, believing they will yield significant long-term benefits.
“We are encouraged that Meta's success w/Llama 3 and Meta AI has increased management's confidence in leading in AI,” he noted.
The company’s strong competitive position, focus on user experience and strategic alignment with AI and the metaverse suggest a promising future, per Anmuth.
Despite the increased spending, analysts project double-digit revenue and EPS growth for Meta in 2025 and 2026, given its history of driving returns on investment.
Wedbush On Meta Analyst Scott Devitt had an Outperform rating on Meta. Devitt too, reduced his price target on the stock from $570 to $480 a share.
Meta is “in the early stages of a multi-year investment cycle to support metaverse and AI initiatives that will
likely take several years to scale adoption and monetization,” said Devitt.
Wedbush has adjusted its profit forecasts to account for Meta’s accelerated expense growth and increased capital expenditure in the coming years. For the near term, Devitt thinks “the setup will be challenging” and sees limited upside.
On a relative basis, Wedbush favors Alphabet Inc.’s (NASDAQ:GOOG) (NASDAQ:GOOGL) Google (Outperform, Best Idea), within the group.
Needham On Meta Analyst Laura Martin had an Underperform rating on Meta and no price target. Her recommendation: “use Meta as a source of funds,” implying investors should sell the stock as opposed to buying it.
Martin is skeptical about buying Meta stock for several reasons.
- Meta’s management suggests it is in a two- to three-year investment cycle before revenue growth materializes, which raises concerns about the stock’s potential.
- The reliance on Chinese discount retailers like PDD Holdings Inc (NASDAQ:PDD)-owned Temu and Shein for over 20% of 2023 revenues may face challenges due to escalating geopolitical tensions between the U.S. and China.
- Meta’s strategy of targeting hardware markets with low margins and competing directly against giants like Apple Inc (NASDAQ:AAPL) and Google in the smartphone replacement market could be costly.
- The company expects significant losses in 2024 for its Reality Labs division, which focuses on AR, VR, and the metaverse.
- Its use of Open LLMs (large language models) is a cause for concern.
- Meta’s heavy investments in LLMs and the metaverse may lower its return on invested capital (ROIC) in the short term.
She ask, “Does META have a terminal value?” given the lack of control it has over its distribution or content.
Raymond James On Meta Analyst Josh Beck had a Strong Buy rating on Meta and reduced his price target from $550 to $525 a share. Beck sees Meta on AI crossroads “where signs still point to a Buy.”
Beck sees the higher capital expenditure on AI in 2024 being driven by a desire to advance its state-of-the-art foundational models (FMs) with Llama 3 and train for future generations. This comes with potential training cost increases of 10x in 2024 and possibly another 10x in one to two years.
Additionally, Meta is aggressively pursuing FM (Foundational Models) leadership as a potential “dark horse” in the open-source community, which could lead to new opportunities. RJ (GenAI deep dive) projected a $300 billion GenAI Software Stack market, with every 1% share potentially adding about two points to Meta’s revenue growth.
Rosenblatt On Meta Analyst Barton Crockett had a Buy rating on Meta with a price target of $562 a share.
Crockett sees Meta “starting to hit an AI moment of truth.” Costs are increasing while sales are decelerating compared to previous periods, but there is optimism for a future acceleration driven by advancements in AI, he acknowledged, declaring, “We’re believers.”
Barclays On Meta Barclays views Meta’s expanded capex announcement around AI, “as positive for ANET given META is one of the two major cloud companies that account for a large portion of ANET revenues. The company sees incremental runway for ANET as META builds out their AI data center infrastructure.”
Oppenheimer On Meta Analyst Jason Helfstein maintained an Outperform rating on Meta and lowered the price target from $585 to $500 a share.
Helfstein said Meta Platforms is the world's largest social networking company, with 3.7 billion monthly users across all its properties. “While META’s historical advantage has been the social graph and
the ability to share and follow pictures and videos uploaded by users (read Facebook), the company now believes it must evolve to use advanced algorithms to deliver content to users and leverage its social
graph in the Metaverse.”
Roth MKM On Meta Analyst Rohit Kulkarni had a Buy rating on the stock with a price target of $510 a share.
Kulkarni sees “AI moat now deeper” for Meta. He recommends that investors buy the stock on weakness.
“We believe META has entered a phase where ad load won’t be a primary driver of growth, and we might be at the beginning stages of AI-driven ad pricing growth,” Kulkarni noted.
Piper Sandler On Meta Analyst Thomas Champion had an Overweight rating on Meta with a price target of $545 a share.
According to Champion, Meta still appears poised to increase market share, “but a ‘multi-year investment cycle has begun.” He sees Meta’s valuations as “undemanding at a 10%+ discount to the market.”
While the timeline to AI monetization is a little uncertain, management appears to be investing behind a big
opportunity,” he added.
BofA Securities On Meta Analyst Justin Post gave Meta a Buy rating with a price target of $550 a share.
Post says Meta’s “momentum cycle likely over, but investing in the right places.” Post believes that platforms such as Reels, Messaging, and AI improvements are still in the early stages, with the potential to drive double-digit ad growth through 2025. There is also a possibility of upside related to the proposed TikTok ban.
KeyBanc Capital Markets On Meta Analyst Justin Patterson rated Meta as Overweight and reduced his price target from $555 to $475 a share.
According to Patterson, Meta’s recent earnings report emphasized that its investment in AI is a long-term strategy spanning multiple years. However, challenging comparisons are “invoking fears of over-spending” and forming a “wall of worry.”
Patterson’s Overweight stance, however, rests on a simple notion. The advertising market is shifting towards favoring companies with scale, Meta is already making progress in this regard, with 30% of Facebook feed posts and over 50% of Instagram content being delivered through AI recommendation systems.
While the timeline for revenue from AI agents is uncertain, Meta could emerge as one of the few strong players in the market once the transition is complete.
Benchmark on Meta Analyst Mark Zgutowicz had a Hold recommendation on Meta stock with no price target.
According to Zgutowicz, Zuckerberg’s ambitious goal for Meta AI to become the best AI assistant in the world implies a long-term investment cycle spanning over five years, with multiple iterations of their Llama AI model.
Despite this goal, the return profile for investors may remain unclear for the foreseeable future. In terms of 2024 revenue projections, Meta is expected to face challenges due to tough comparisons with Temu/Shein and a new reliance on impression pricing as the growth in Reels impressions over the past two years slows down naturally.
META Price Action: Meta stock is down 10.50% at $441.70 Thursday at publication.
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Latest Ratings for META
| Jul 2020 | Desjardins | Initiates Coverage On | Buy |
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