Meta's Q4 Earnings: Can Ad Revenue and Meta Glasses Drive the Stock Surge?

 

Meta ($META) is set to report its Q4 earnings after market close on January 29. Analysts are predicting revenue of $46.97 billion, reflecting a solid 17.1% year-over-year growth, and earnings per share (EPS) of $6.75, a 26.7% increase from the previous year.

 

2024 has been a standout year for Meta, with its stock soaring over 66%. On December 11, the stock hit an all-time high of $637.88. As of the latest close, Meta's stock ended at $636.45, just shy of that peak, showing an 8.7% increase from the beginning of the year.

 

Meta's Q3 results were impressive, with revenue reaching $40.59 billion, up 19% year-over-year—slightly beating analysts' expectations of $40.25 billion. Net income jumped 35% to $15.7 billion, and EPS came in at $6.03, well above the $5.25 forecast. Daily active people (DAP) across Meta platforms averaged 3.29 billion, up 5% from the prior year.

 

Looking ahead to Q4, investors are particularly focused on Meta's advertising business, its metaverse division Reality Labs, and capital expenditure trends.

 

 

Advertising is Meta's main revenue driver, making up more than 98% of its total revenue. In Q3, ad sales reached $39.88 billion, and Bloomberg estimates Q4 ad revenue will grow 18%, reaching $45.69 billion.

 

Meta is also ramping up its AI initiatives. CEO Mark Zuckerberg recently highlighted that Meta's chatbot, Meta AI, now has over 500 million monthly active users. The company's CFO predicts that Meta AI will become the most-used AI assistant by the end of 2024.

 

 

Additionally, a potential U.S. ban on TikTok could boost Meta's ad revenue further. eMarketer predicts that if TikTok is banned, Meta and Google will capture over half of the redirected ad spend, with Instagram and Facebook benefiting the most. Instagram's share would be 22.4%, while Facebook's would take 17.1%.

 

While the TikTok situation is still up in the air, with Trump recently extending the ban deadline by 75 days, any significant changes could give Meta a solid boost in ad revenue.

 

 

Meta's big bet on the metaverse, particularly through its Reality Labs division, continues despite substantial losses. In Q3, Reality Labs posted $4.4 billion in operating costs, with only $270 million in revenue. Since 2020, Meta's cumulative losses in the metaverse have surpassed $58 billion.

 

Revenue from Reality Labs mainly comes from sales of Quest VR devices and Ray-Ban smart glasses. For Q4, Bloomberg expects Reality Labs to generate $1.11 billion in revenue, a 3.48% increase from Q3.

 

Despite ongoing losses, Meta remains committed to its metaverse vision. At its September developer conference, Zuckerberg unveiled the Orion AR glasses prototype, which he called "the most advanced glasses yet." However, the Orion glasses are still in prototype stage, with only about 1,000 units produced, each costing $10,000 to make.

 

A bright spot is the surge in demand for Meta's Ray-Ban smart glasses. According to Goldman Sachs analyst Jack McFerran, Sensor Tower data shows a 200% increase in downloads of the "Meta View" app in Q4 2024. Priced around $300, these glasses have become a holiday shopping hit, with search interest on Google significantly outpacing Apple's Vision Pro—held back by its steep price tag.

 

Looking ahead, Meta plans to release true AR glasses by 2027, with the Orion prototype possibly available to developers by 2026. Additionally, sources reveal that Meta's device division, Reality Labs, aims to launch a new high-end pair of glasses with an integrated display in 2025, further expanding its presence in the wearable device market. The company is also working on advanced headsets that could rival Apple's smartwatches and AirPods. By 2028, Meta predicts its wearable devices will contribute 5% of its total revenue, up from just 1.2% today.

 

 

Meta has been ramping up its capital expenditures, especially in AI. In Q3, capital spending rose 26.21% year-over-year, reaching $8.26 billion. For the full year, Meta expects capital expenditures to range from $38 billion to $40 billion, a 39% increase from 2023.

 

These investments are aimed at enhancing AI across Meta's apps, including Facebook, Instagram, and WhatsApp. The company is focusing on AI-powered recommendation engines and generative tools for advertisers to improve user engagement and increase revenue. As Meta increases its investment in AI technology, capital expenditure is expected to further increase by more than 30% in 2025 to support the expansion and upgrade of its AI platform.

 

While the rise in capital expenditures has raised concerns about profitability, signs of returns are starting to show. In Q3, Meta's "Family of Apps" revenue grew 19%, with double-digit increases in ad impressions and pricing. This growth was driven by the optimization of Meta's AI recommendation engines, which boosted user activity and ad exposure.

 

 

Meta has been delivering strong performance in certain areas, but its stock price surge is largely tied to investor confidence in its AI investments. If the company continues to show tangible results from its AI initiatives, the stock could keep climbing. However, the ongoing losses in Reality Labs and the rising capital expenditures will remain key risks.

 

Looking at the options market, analysts predict moderate volatility after the earnings report, with a slight bias toward calls. The stock is expected to move within ±8.2%, but whether this will be an upward or downward shift depends largely on how well Meta can manage its AI investments and the losses in the Metaverse.

 

Meta's smart glasses demand surge could help it further expand its share in the wearable tech market, but the majority of its revenue still comes from advertising. So, while growth in the metaverse is positive, it won't have a decisive impact on Meta's performance in the short term.

 

What do you think? Can Meta's stock climb after Q4 earnings report? #earnings #meta