On October 25th, Futu news. $Meta Platforms (META.US)$ Meta is expected to announce its post-market trading results on October 30th, US Eastern Time. The market expects Meta to achieve a revenue of 40.299 billion USD in Q3, an 18.02% year-on-year increase; and an EPS of 5.28 USD, a 20.24% year-on-year increase.

This year, Meta's stock price has shown an overall upward trend, hitting a historical high of 602.95 USD during intraday trading on October 7. As of the US stock market closing on October 24, the company's stock price rose by 0.73% to 567.78 USD.

Looking ahead to this quarter's performance, investors will focus on Meta's advertising revenue, capital expenditure, and the specific situation of the 'metaverse' Reality Lab.

As a core source of income, attention is focused on Meta's advertising revenue.

In terms of advertising, this remains Meta's core source of income. According to the company's Q2 financial report, its core advertising revenue increased by 21.7% year-on-year to 38.329 billion USD, accounting for nearly 98% of its total revenue, with the main contributions coming from Facebook and Instagram. From this perspective, Meta may be the most pure advertising company among the tech giants, and the market is most concerned about its advertising business. Bloomberg expects Meta's Q3 advertising revenue to reach 39.465 billion USD, a 17.30% year-on-year increase, and a 2.96% increase from the previous quarter.

In a previous conference call, Meta management stated that AI-recommended content is the fastest-growing item in Facebook subscriptions. At the same time, the company has launched the automated advertising product Meta Advantage, with almost all Meta advertisers using at least one AI-driven product. AI can optimize the efficiency of content promotion while also increasing the conversion rate of ad placements. Therefore, Meta's substantial investment in AI has a positive impact on its advertising revenue.

In addition, according to eMarketer's forecast, the fiscal year 2024 will be a record year for digital media advertising spending. As most of Meta's revenue comes from advertising, this will make Meta benefit more than other companies.

The market is focusing on Meta's capital expenditures and how AI investments will be a tangible driver of revenue and profit growth.

So far, Meta's investment in AI models, especially Llama 3 and the upcoming Llama 4, has been quite substantial. According to the previous quarterly report, Meta raised the lower end of its full-year capital expenditure range forecast by 2 billion USD, while the upper end remains unchanged at between 37 billion USD and 40 billion USD. Bank of America expects Meta's full-year capital expenditures to fall at the upper end of that range. For market investors, how these AI technologies further increase revenue is crucial.

Regarding the monetization of AI, Meta's CFO Susan Li previously stated in an earnings call: "We improve the efficiency of ad delivery and ad ranking architecture by optimizing more complex modeling techniques through AI, enhancing ad effectiveness and delivery efficiency." In addition, Susan Li expects that AI will also make communication between companies and customers more efficient. According to Zuckerberg, Meta's AI virtual assistant has been applied in various scenarios, and for more complex functional applications, users can use the AI Studio feature to create AI agents to assist in content creation, sharing, and interaction, effectively improving service efficiency in commercial settings.

Jefferies analysts previously believed Meta has three opportunities to monetize Llama: providing a 'professional business version' with enhanced support and security features, allowing clients to personalize their own models, develop applications, and train models from scratch with 'custom AI services,' and 'increasing advertising revenue' through higher user interaction and engagement.

Focus on the loss situation and market prospects of 'metaverse' Reality Lab.

'Metaverse' Reality Lab division has seriously dragged down Meta's profits. In Q2 of 2024, Reality Labs suffered a loss of 4.5 billion USD, a 20% increase from the same period last year. Some market analysts believe that the loss in Q3 may be even greater, exceeding 4.5 billion USD.

In order to reduce losses, Meta has recently been reported to start layoffs. On October 17th, according to The Verge, the departments affected by the layoffs include Instagram, WhatsApp, and Reality Labs. A spokesperson for Meta stated in a release that some teams within the company are undergoing adjustments to align with their long-term strategic goals and positioning.

Reality Lab's significant loss is mainly due to the company's continuous heavy investment in AR glasses like Orion. On September 25th, local time, Meta unveiled its first prototype of AR glasses, codenamed Orion, with a starting price of $299 at the 2024 MetaConnect conference.

Guo Mingchi from TF International Securities stated that Meta's internal product roadmap indicates that Orion could enter mass production as early as 2027. However, the responsible company for production and the transition from design to mass production has not been decided yet. Coupled with some technical challenges, the actual mass production time may be later than expected. In addition, some analysts believe that due to limited use of wearable headsets in social environments, VR products face greater risks compared to AR products.

Institutions hold an optimistic attitude towards Meta.

Hedge fund manager Dan Niles is particularly bullish on Meta. He explained that, for example, Meta can predict the videos and ads users want to see through AI algorithms. "This brings better revenue and profitability to the company... They exceed expected revenue and surpass the previous quarter's earnings per share."

Niles pointed out that Meta is 'truly the best company in using AI internally.' This seasoned investor describes his investment style as seeking 'growth at reasonable prices' and hopes to see returns brought by artificial intelligence. He expects the tech giant to benefit from the upcoming 'intensely competitive' US presidential election in November, as there will be 'a lot of advertising spending.'

'A really nice thing is that you can get it at a multiple far above market, which is much better than market growth, and it's the best AI company in use. So, after considering all these different factors, that's why I'm still bullish on Meta next year, because of reasonable valuation, good growth, and the opportunity in artificial intelligence,' Niles added.

Furthermore, ahead of the earnings announcement next week, several institutions have updated their positive views on Meta:

Bank of America Securities maintains a buy rating on Meta with a target price of $630, considering Meta as a top AI pick.

Jefferies also maintained a buy rating on meta and raised the target price from $600 to $675;

TD cowen raises meta's target price to $675;

Cantor Fitzgerald maintains an overweight rating on meta;

Mizuho Financial raises meta's target price to $650 and expects meta's next week's earnings report to exceed market expectations.

Editor/Jeffy