Meta's Stock Has Been Soaring - And Analysts Say Advertising is Picking Up

As Meta Platforms Inc. approaches the release of its fiscal second-quarter results on Wednesday, analysts are expressing great enthusiasm for the company. Over the past six months, Meta's shares have surged by 144%, and the positive sentiment stems from various factors. The company's digital-advertising return on investment and efficiency have improved, while investments in artificial intelligence have boosted engagement on Instagram. Additionally, the new social-media platform Threads has gained traction, and business is picking up on Reels and WhatsApp.

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JMP analyst Andrew Boone raised his price target on Meta shares to $350 from $300, maintaining an outperform rating, citing strong engagement trends and improved ad performance driven by AI. Jefferies analyst Brent Thill also expressed optimism in Meta's fundamentals, expecting the company to beat revenue estimates for the second quarter and provide guidance for third-quarter revenue growth.

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However, it's essential to acknowledge that the tech industry can be volatile, and there are potential risks to consider. Uncertain macroeconomic conditions may impact AI spending, and the initial hot growth of Threads has cooled down significantly.

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Regarding the upcoming results, analysts tracked by FactSet predict earnings of $2.91 per share, up from $2.46 per share the previous year, with revenue expected to reach $31.1 billion, up from $28.8 billion last year.

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Investors will closely monitor the progress of digital-ad spending, particularly on Instagram. There is growing optimism about an improving digital ad market for Meta, considering the company's cost structure rationalization and improved monetization at Reels and Messaging. Jefferies' Thill believes that Meta's revenue growth will accelerate, supported by favorable year-over-year comparisons, increased engagement from AI investments, and improved advertiser return on investment and efficiency.

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Goldman Sachs analyst Eric Sheridan also highlights a positive risk/reward outlook for Meta shares, reflecting the company's management pivot towards increased efficiency, as emphasized by Meta CEO Mark Zuckerberg in what he calls a "year of efficiency."

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