Meta's AI Edge: Undervalued Assets Could Drive Surprising Gains, Analysts Say

Zinger Key Points
  • Meta's Q1 ad revenue to grow 26% Y/Y, hitting $35.5 billion; first-quarter DAUs estimated at 2.120 billion.
  • Analyst bullish on Meta, highlights Reels and AI-driven ads as key to 2024 revenue momentum; sees stock as undervalued.

BofA Securities analyst Justin Post reiterated a Buy rating on Meta Platforms Inc META with a price target of $550.

The analyst marginally increased his first-quarter estimates for positive ad checks and Easter benefits but lowered second-quarter and 2024 estimates for recent U.S. dollar depreciation. 

Post estimates first-quarter revenue of $36.4 billion (up 27% Y/Y) above Street at $36.2 billion. 

Also Read: Google’s DeepMind to Lead Unified AI Charge as Company Seeks to Outpace Microsoft

He expects ad revenue to grow 26% year over year to $35.5 billion (vs. the Street at $35.4 billion), with 2 points of Q/Q acceleration. 

Post estimates EBITDA at $20.9 billion and EPS at $4.48, above Street at $20.3 billion and $4.33, respectively. 

For users, Sensor Tower suggests healthy Instagram users & time spent (though Facebook time spent was down Y/Y). 

Post expects first-quarter DAUs at 2.120 billion (vs. Street at 2.117 billion). The analyst noted some sentiment risk on Y/Y deceleration in the second-quarter revenue guide as the first quarter had benefitted from easy January comps, Leap Year, Easter, and FX. 

Given recent USD depreciation, Post lowered second-quarter revenue 1% to $38.6 billion (vs Street at $38.3 billion) and expect EPS of $4.87 (vs $4.78).

Post anticipates a conservative outlook for the second quarter, projecting revenues between $36.0 billion and $39.5 billion, which encompasses the Street’s estimate of $38.3 billion. Given the strong revenue performance, the expense forecast remains steady at $94 billion to $99 billion.

The analyst remained positive on Meta and reiterated his thesis that Reels, Messaging, and AI-driven ad improvements are still early and could lead to positive product surprises and revenue momentum in 2024.

Moreover, with a sizeable capex budget, internal AI supercomputer, in-house LLM, and custom AI chips, he noted Meta’s AI assets are underappreciated in the stock price with stock at 16x core fiscal 2025 EPS.

Finally, there is always potential for Metaverse spend rationalization as AI focus and ROI at Meta appear to grow. Post also noted that Meta could stand to benefit the most from any restrictions imposed on TikTok.

Price Action: META shares traded lower by 2.89% at $487.40 on the last check Friday.

Also Read: Meta’s Strategic AI Investments Enhance Ad Targeting, Boosting Revenue Projections: Analyst

Photo: Shutterstock

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