This week, the American tech giants$Meta Platforms (META.US)$Released LLAma3.1, its strongest open source AI model, Zuckerberg confidently claims that it is the “top level in the industry” AI model, and is sufficient to compete with competitors such as OpenAI and Google.

Looking ahead to next week, Meta will face a “big test”, and the company will announce the latest results after the market on July 31 (next Wednesday) EST. Currently, the market generally expects Meta to achieve revenue of 38.284 billion US dollars in the second quarter, an increase of 19.64% over the previous year; earnings per share of 4.75 US dollars, an increase of 59.34% year on year.

Looking ahead to the second quarter results, Meta's number of users, advertising market, capital expenditure, and AI business conditions will be the focus of market attention.

• The number of users is expected to continue to grow

Market data indicates that thanks to AI technology, Meta's application products such as Facebook, Threads, and WhatsApp are expected to see an increase in the number of users in the second quarter. This growing trend will increase the platform's appeal to advertisers and is expected to directly translate into revenue growth for Meta.

As of May, Facebook had more than 40 million 18-29 year old users in the US and Canada, reaching a three-year high; at the same time, the number of monthly active users of Threads also reached 0.175 billion, an increase of 25 million over the previous month.

This month, Meta announced in an official blog post that the number of users of its instant messaging app WhatsApp in the US has broken the 0.1 billion mark. The company further explained, “This historic milestone is the result of long-term efforts and accumulation. It not only highlights the strong strength of WhatsApp as a communication bridge across platform boundaries, but is also proof of widespread recognition and trust in the US market.”

• Strong demand in the advertising market

Citibank analysts expect Meta's advertising revenue to grow significantly in the second quarter, rising 20.5% year over year to $37.95 billion. This forecast is based on the continuous improvement of the advertising market and the widespread application of Instagram and Reels. In particular, the latter successfully promoted an 8-10% increase in viewing time with an AI recommendation system, and Meta's innovative products and features for advertisers, which further enhanced the appeal of its platform.

Meanwhile, Wedbush analysts' survey results show that most advertisers plan to increase or maintain investment in the Meta platform. This trend is expected to inject strong impetus into Meta's second-quarter results and lay a solid foundation for continued growth in the second half of the year.

What is particularly remarkable is the generative AI tool expansion plan recently announced by Meta, which aims to provide its huge advertising customer base (over 10 million) with unprecedented convenience. By automatically generating marketing materials by uploading product images, it has greatly improved the efficiency and individuality level of advertising creation.

Furthermore, as a growth highlight, Reels's ad load volume climbed to 21.5% in the second quarter, up 1.5 percentage points from the previous quarter. On average, every 50 videos contained 11 ads, fully demonstrating its huge potential as an advertising display platform. Based on this, Citi predicts that as ad impressions continue to grow, Reels will continue its strong growth momentum and achieve continuous quarter-on-quarter growth.

• The capital expenditure situation will be the “biggest focus”

Previously, Meta's excessive investment in the metaverse sector triggered a wave of sell-offs among investors, reflecting the market's distrust of its investment strategy. Entering the second quarter, investors will scrutinize the direction of Meta spending even more strictly. In particular, the annual capital expenditure budget disclosed by the company in the first quarter was as high as 35 billion to 40 billion US dollars, far exceeding market expectations. The capital expenditure situation will become the “main focus” of this quarter's results.

Earlier, Zuckerberg publicly stated that training the Llama 3 series AI models cost “hundreds of millions of dollars,” and predicted that future models would require billions of dollars or more. To this end, Meta is speeding up the construction of its AI infrastructure and is expected to have around 0.35 million units by the end of the year$NVIDIA (NVDA.US)$The H100 GPU makes Meta the company that spends the most on AI hardware among big tech companies.

Citi predicts that in the second quarter, although Meta has restructured its metaverse division Reality Labs and cut costs, the operating profit margin in the second quarter will increase by 1.4% as a result, but the accompanying personnel optimization measures may result in large one-time expenses. At the same time, capital expenditure is expected to increase 43.3% month-on-month to 9.6 billion US dollars due to the expansion of the AI business, which may put some pressure on operating margins.

Furthermore, according to people familiar with the matter, the European Union is about to make a penalty decision on Meta within the next two to three months, which could involve fines of up to 13.4 billion US dollars. Therefore, investors also need to pay attention to Meta's upcoming conference call to get an in-depth analysis of the official response and potential impact on this matter.

• “Top” open source AI model llama3.1

Finally, Meta's latest announcement revealed that its Llama 3.1 model is specifically designed to drive multilingual chatbots, supports interaction in eight languages, can generate higher quality computer code, and effectively solve complex math problems.

The maximum parameter size of the model reached an astonishing 405 billion, a qualitative leap from last year's version, although compared to some leading competitors in the market, such as OpenAI's GPT-4 (which has 1 trillion parameters) and$Amazon (AMZN.US)$The planned 2 trillions parameter model is still slightly inferior.

The market generally expects that as the Meta business integrates Llama 3.1's powerful AI capabilities, it will bring unprecedented experience improvements to users and advertisers, further strengthen its market position, and attract more users and partners.

How did the stock price perform on previous earnings days?

According to MarketChameleon, after backtesting the past 12 quarterly results days, Meta had a high probability of falling on the day of the results release, which was about 58%. The average change in stock price was ± 13.2%, the maximum decline was -26.4%, and the highest increase was +23.3%. Meta performed -10.6% and +20.3% on the two quarterly results days this year, respectively.

Currently, Meta's implied change is ± 9.9%, indicating that the options market's single-day rise and fall rate after betting on its performance reached 9.9%; in comparison, Meta's average post-performance share price change in the first 4 quarters was ± 9.8%, indicating that the stock's current options value options are reasonable.

Looking at the volatility bias, the current market trend is slightly bearish on this stock.

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