JMP Securities analyst Andrew Boone maintained Meta Platforms Inc (NASDAQ:META)with a Market Outperform and raised the price target from $300 to $350.

Ahead of Meta's 2Q23 earnings on July 26, Boone increased his estimates given strong engagement trends, improving ad performance driven by AI, and the 2Q23 advertising environment more broadly appears to be stable. 

The analyst believes Meta is in the early stages of benefiting from multiple product catalysts, including Reels, AI, and cost discipline. 

Specifically, Reels and improved recommendation algorithms are driving greater user engagement, and with models still improving, he expects Facebook and Instagram to continue to take a share of user time. 

Advantage+ is seeing increased adoption for ads, while he believes AI is improving targeting and attribution. 

With comps easing over the next several quarters while 1Q23 cost measures are a tailwind to profitability, the analyst thinks his increased estimates remain conservative as he believes shares can move higher.

Goldman Sachs analyst Eric Sheridan reiterated Meta with a Buy and raised the price target from $300 to $335.

Credit Suisse analyst Stephen Ju maintained Meta with an Outperform and raised the price target from $277 to $361.

The analyst previewed Meta's 2Q23 results as he recalibrated his estimates again, factored in capital structure changes, and rolled forward his valuation parameters to 2024. 

The analyst's FY23 and FY24 adjusted EPS are now $18.40 and $20.97, respectively, vs. the prior $18.28 and $19.26. The GAAP EPS estimates for the same stand at $11.79 and $14.67 vs. the previous $11.63 and $13.31.

Revenue growth for Meta 2020-2023 has been anything but linear. Of the $12.7 billion of revenue growth anticipated for 2024, he assumed that ~$10 billion would come from core Facebook and Instagram – lower than historical, given the loss of signal. 

And with the balance to come from the monetization ramp in WhatsApp, Messenger, and Reels – at ~$2.7 billion (versus the 2021 to 2022 ramp of $1 billion - $9 billion), he expects this to change from being an offset for lost revenue to a more meaningful driver for Meta's growth for 2024 and beyond. 

In the near term, his checks with advertisers suggest budget growth acceleration as he begins to lap the more significant drop-offs that started in May last year. 

And similar to the feedback established in the previous few quarters, Advantage+ continues to help advertisers adjust for signal loss, driving incremental share recapture for both Instagram and the core Facebook app. 

His FX-neutral ad revenue growth rate for 2Q23 reflects 12.7% and anticipates ongoing acceleration into 3Q23. 

The rerating reflects the potential for positive operating margin and FCF growth inflection starting in 3Q23 and accelerating after that, with potential for better-than-expected ad revenue growth given increased monetization of Instagram and other properties/Reels and optionality for Reality Labs investments to moderate as Meta unlocks greater efficiencies.

Price Action: META shares traded higher by 0.65% at $310.88 on the last check Monday.