Will Meta Platforms Q1 results surprise Wall Street? 🗽

Meta Platforms (META.US) will be the next Silicon Valley giant to report Q1 results this week. We will learn them after the Wall Street session. After yesterday's very successful report from Microsoft (MSFT.US) and a slightly weaker but still positive one from Alphabet (GOOGL.US), the market is judging that Zuckerberg's company has a shot at beating expectations, with shares gaining nearly 2% today.  Previously, the company beat earnings per share expectations despite a 4% y/y decline in revenue. Mark Zuckerberg has called 2023 the year of efficiency - the market will want to see if for sure net profit will score an increase in the face of cost-cutting policies. What will Wall Street pay attention to?

Revenue forecast: $27.67 billion (down 1% y/y) (Bloomberg)

Earnings per share (EPS) forecast: $2.01 (down 26% y/y) (Bloomberg)

• Previously, revenue per user fell y/y - a reversal in Q1 would be very positive. In the last report, the company presented an overall increase in active users in key applications - this metric will also remain very important;
• In view of the dominant share of ad revenue in the report, Meta Platforms' result may be closer to Alphabet's less successful report (ad revenue dominance) - than to Microsoft's;
• Meta's forecast issued in Q4 is $26 to $28.5 billion in Q1 revenue, so Bloomberg's estimate is relatively conservative, considering it - analysts expect a fourth consecutive drop in sales;
• At the same time, they estimate more than $29 billion in revenue in Q2, which would suggest a lot of growth and development for the company. The market will therefore look forward to a positive update of forecasts;
• Meta recently announced another round of 10,000 job cuts (11,000 layoffs in November). The company estimates that costs in 2023 will fall by $5 billion as a result;
• Investors will look for the lower costs to be reflected in higher net income. If this one turns out to be weaker than forecast, we could be in for a disappointment.

AI and Metaverse race

• The company stressed that spending on Reality Labs (VR) will not decline, and that operating losses of the VR division will increase significantly y/y this year. Thus, Metaverse's continued cash burn is almost a foregone conclusion, and is unlikely to surprise the market;
• Investors may take a positive view of any constructive comments and initiatives on AI because the market fears that generative artificial intelligence will limit the company's expansion. According to Reuters reports internal Meta documents indicate 'significant gaps' in AI software development;
• Reuters also pointed out that last summer Zuckerberg gathered executives and pushed for an intensive calculation of internal AI capabilities. The company, therefore, is not about to let go of the development space. It has withdrawn work on its custom AI chip and plans to create a new, more powerful one;
• As the world's largest social app company (Facebook, Instagram, WhatsApp), effective implementation of AI in systems could significantly improve the company's business opportunities. Also, the concept of virtual metaverse (VR) also implies the implementation of many AI solutions including so-called virtual agents, driven by artificial intelligence. Thus, the market may partially depend on the company's development of conversational AI for Metaverse's success.

Meta Platforms (META.US), H1 interval The company's shares are up more than 70% this year, against an 8% rise in the S&P500, and have rebounded 140% from their November low. The price maintained a bullish trend ahead of the results and held support at the SMA200 on the hourly interval. Source: xStation5