Analysts are sizing up the second quarter financial results reported by Meta Platforms META after market close Wednesday, including the impact of artificial intelligence initiatives and the recent launch of Threads.
The Meta Platforms Analysts: Morgan Stanley analyst Brian Nowak has an Overweight rating and raises the price target from $350 to $375.
RBC Capital analyst Brad Erickson has an Outperform rating and raises the price target from $330 to $400.
Guggenheim analyst Michael Morris has a Buy rating and raises the price target from $320 to $375.
Benchmark analyst Mark Zgutowicz has a Hold rating and no price target on the stock.
Needham analyst Laura Martin has an Underperform rating and no price target on the stock.
Morgan Stanley on Meta: Artificial intelligence comments and updates from Meta were key in the second quarter, Nowak said.
“META’s AI investments continue to drive higher engagement, advertiser return, platform monetization and EPS,” he noted.
The analyst said there are at least four ways artificial intelligence is helping power Meta Platform’s growth including: ad tools improving targeting, Reels engagement, non-family/friend content engagement and business messaging trends.
“Advantage Plus is fully AI Powered and continues to have strong success in e-commerce/retail, with incremental traction in CPG (DTC brands. We expect Advantage Plus and its suite of tools to continue to expand and move into more verticals.”
Reels was highlighted by the analyst for its strong engagement and monetization growth in the quarter, helped by the use of AI.
Related Link: Trading Strategies For Meta Platforms Stock After Q2 Earnings
RBC Capital on Meta: Estimates and price targets are raised by Erickson after the second-quarter report and third-quarter guidance.
“META remains our favorite name longer-term given its attractive product cycle story of a company driving engagement share gains and achieving structurally higher conversion, partially owed to AI,” Erickson said.
The analyst sees a bull case or $20 in annual earnings per share and a 20x multiple getting to a price target of $400.
“We liked management speaking to capex and opex next year given elevated ’24 earnings expectations.”
Guggenheim on Meta: Advertising growth in the second quarter came in above estimates and helped the company beat revenue and EPS estimates, Morris said.
“We expect some lingering concern toward increased AI/Metaverse investment into 2024 but see the company now investing from a position of strength rather than a position of need,” Morris said. “Management balanced investment growth and discipline commentary and we believe has regained the investor confidence necessary to support a constructive view of incremental spend.”
Morris noted the company’s comments on Reels growth and “unprecedented growth out of the gate” for Threads.
Benchmark on Meta: The growth of Reels was key for Meta’s second quarter, but the stock is still “heavy,” said Zgutowicz.
“While META’s 3Q guided revenue boost likely lifts the shares today (Thursday), expense creep alongside tougher compares in ’24E should limit share appreciation from current levels,” Zgutowicz said.
The analyst said Reels momentum could hit a wall in the future as it could lead to cannibalization of Instagram engagement.
“Reels still has to keep users satisfied with reasonable ad load given top competing short video app alternatives.”
Needham on Meta: The predictions of Meta stock underperforming in 2023 have proven incorrect so far into the year, said Martin.
“META’s focus is years, as evidenced by >20 mentions of the word ‘long’ on the 2Q23 call. We recommend investors invest elsewhere until Metaverse, Reels, Threads, Quest and Generative AI investments become accretive (if ever) to META’s ROIC, rather than dilutive,” Martin said.
The analyst said every time Meta enters a new category with costs, it increases the short-term risks. One of those new categories is Threads.
“META stated that it will spend money for the next 12 months, and monetize it eventually if it continues to work well and garner consumer adoption.”
The analyst said generative AI is also increasing costs for the company.
Martin said Meta has an expensive playbook of building consumer experiences first and then monetizing long-term.
META Price Action: Meta shares are up 7% to $319.47 in early trading on Thursday, versus a 52-week trading range of $88.09 to $325.35.
Read Next: From $3B To $10B, Meta's AI Driven Reels Skyrocketed
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