Meta Platforms is anticipated to surpass expectations when it releases its third-quarter results, driven by significant advertiser gains and the rapid monetization of reels, according to insights from BofA Securities. The brokerage has projected revenues of $40.36 billion and earnings per share of $5.35, both figures exceeding consensus estimates of $40.2 billion in revenue and $5.19 in earnings per share.
The company, known for its popular platforms Facebook and Instagram, is set to announce its earnings on October 30. The anticipated performance reflects Meta's continuous endeavors to enhance return on investment (ROI) for its advertisers. Analyst Justin Post highlighted that the firm's innovative artificial intelligence tools, along with new customer relationship management integrations, are expected to contribute to a higher ROI and encourage incremental advertising spending. For the third quarter, BofA estimates advertising revenues to reach $39.59 billion, showing a year-over-year growth rate of 20%, excluding foreign exchange impacts.
However, this marks a slight deceleration compared to the second quarter's growth pace of 23%. Additionally, Meta could experience a boost in political advertising spending, which may provide a benefit of 100 to 200 basis points. The ramp-up in AI tools is also driving the successful monetization of Instagram reels.
In September, Meta introduced several AI-driven advertising tools designed to improve the effectiveness of ads, including new formats that offer personalized discounts, reminders about upcoming sales and events, and the ability to feature multiple landing pages within a single video advertisement. According to Sensor Tower data referenced by BofA Securities, the number of daily active Instagram users likely increased by 5% year-over-year in the third quarter, although this represents no growth compared to the previous quarter.
The data indicates that Instagram is experiencing significant engagement growth, likely fueled by its Reels feature and AI-enhanced content targeting strategies. Conversely, Facebook may be facing a slight decline in user engagement, as suggested by Post. Moreover, it is anticipated that the social media giant may reduce its upper-end expense guidance for 2024 by $1 billion, bringing it to a range of $96 billion to $98 billion, which is below the consensus estimate of $98.2 billion.
BofA Securities has reiterated its buy rating for Meta shares, maintaining a price target of $630. As Meta continues to navigate challenges such as a decline in the average number of job openings quarter-over-quarter and recent layoffs, Post suggests that the company's costs for 2024 could be lower than previously estimated. Current stock price stands at $580.95 with a change of +5.79, reflecting a percent increase of +1.01..