Meta Q4 2024 Earnings Preview: What to Watch

Meta Platforms will report its Q4 2024 earnings on January 29th after market close. This release marks a key moment for the company to showcase its performance over the past few months. Still, it also serves as a crucial opportunity for the market to evaluate the effectiveness of its strategic shifts.

Analysts expect Meta to report Q4 revenue of approximately $46.9 billion, representing a year-over-year growth of about 17.1%. Earnings per share (EPS) are anticipated at $6.75, a 26.73% increase from the previous year.

The projected revenue growth significantly outpaces the 12% growth rate in the same quarter last year, signaling that Meta's core business might be rebounding.

Goldman Sachs analyst John Black noted, "Meta's advertising business has shown notable recovery over the past few quarters, particularly with the growth in Reels ad revenue. We expect this trend to support solid revenue growth for the company in 2024."

Meta's advertising business is the cornerstone of its revenue, but it has faced significant challenges following Apple's privacy policy changes. However, the company's focus on Reels, its short-form video platform, has started to show results. Meta announced that Reels' ad load increased by 22.2% in Q3 2024, marking a 5% sequential growth, and over 75% of advertisers are now running ads on Reels.

Meta's AI-driven ad recommendation engine has also helped optimize ad targeting efficiency. The company claims its AI model has significantly reduced "ad mismatch" risks, improving advertisers' return on investment (ROI) by more than 15%.

Morgan Stanley analyst Brian Nowak stated, "While privacy challenges remain, Meta's ad business recovery has exceeded expectations this year. The combination of Reels and Facebook ads will drive substantial ad revenue growth. We are optimistic about the rebound in ad revenues in 2024 and 2025."

However, competition from TikTok remains a concern. TikTok's daily active users (DAU) have surpassed 1.5 billion, and its ad revenue is growing nearly 30% yearly. Meta must prove its ongoing innovation and ability to maintain its competitive edge in content and advertising.

Meta's massive investment in the metaverse remains a contentious issue. As of Q3 2024, Meta's Reality Labs division (responsible for AR/VR) has spent over $80 billion on research and development. Despite the lack of substantial financial returns, Meta's management emphasizes that these investments are part of a "long-term strategy."

Recent data indicates that Meta Quest 3 sales reached approximately 1.5 million units over the holiday season, marking a 25% year-over-year increase from Quest 2.Thissuggests that consumer interest in VR hardware is recovering. Meta's experiments with "immersive advertising" and the virtual social platform Horizons could also drive new growth.

Credit Suisse analyst Stephen Ju believes, "Although the metaverse project has yet to deliver direct financial returns, Meta's investments in this area will lay the foundation for future growth, especially if its VR and AR devices provide better tools for developers and drive virtual content creation."

Meta's efforts to manage costs and improve operational efficiency are also scrutinized. For 2024, the company expects to save approximately$5 billionthrough workforce reductions and technological optimizations. Meanwhile, its research and development spending remains high, with R&D expenses accounting for 30% of revenue in Q3 2024—significantly higher than Google's Alphabet (17%) and Amazon (13%).

However, Meta's free cash flow (FCF) has improved significantly, growing from $4.8 billion in 2023 to $6.8 billion in Q3 2024, indicating its profitability is rising. Analysts expect Meta to enhance its cash flow conversion rate further, supporting its future capital expenditures.

J.P. Morgan analyst Doug Anmuth commented, "Meta's cost-control efforts and capital expenditure optimization allow the company to maintain profitability while continuing to invest heavily in innovation. We expect its free cash flow to continue growing into 2025, particularly as advertising and metaverse investments start to pay off."

Wells Fargo analyst Ken Gawrelski has raised Meta's price target from $641 to $685, maintaining an "Overweight" rating.Thisreflects an expected upside potential of more than 10% for Meta's stock price.

Inaddition to Wells Fargo, both Morgan Stanley and TD Cowen have adjusted their price targets. Morgan Stanley has increased its target to $660, while TD Cowen has raised it from $695 to $675, signaling strong confidence in Meta's performance.

The potential ban of TikTok in the U.S. could further benefit Meta, particularly its Reels feature on platforms like Facebook and Instagram, leading to increased user engagement.