TLDR
- Meta’s Q2 revenue reached $39.07 billion, exceeding analyst estimates
- The company’s AI initiatives are showing early returns in core business
- Meta raised its lower-end capital expenditure guidance for 2023
- Daily active people across Meta’s platforms grew to 3.27 billion in Q2
- Analysts from KeyBanc and Stifel raised their price targets for Meta stock
Meta Platforms, the tech giant behind Facebook, Instagram, and WhatsApp, has delivered a strong performance in the second quarter of 2023, surpassing Wall Street expectations and prompting a positive response from investors and analysts alike.
The company reported Q2 earnings of $5.16 per share on revenue of $39.07 billion, beating analyst estimates of $4.70 and $38.26 billion, respectively. This financial success led to a significant boost in Meta’s stock price, which jumped approximately 7% in premarket trading following the announcement.
Meta’s core business showed robust growth, with daily active people (DAP) across its family of apps reaching 3.27 billion, marking a 7% increase from the same period last year. This growth suggests that Meta’s platforms continue to attract and retain users despite increasing competition in the social media landscape.
The company’s investments in artificial intelligence (AI) appear to be paying off. CEO Mark Zuckerberg highlighted that Meta AI is on track to become the world’s most-used AI assistant by the end of 2024. Additionally, the company reported “good traction” with its AI-infused Ray-Ban Meta smart glasses, launched in September 2022.
Looking ahead, Meta provided an optimistic outlook for the third quarter, guiding for total revenue between $38.5 billion and $41 billion. This projection exceeded Wall Street estimates and contributed to the positive market reaction.
However, Meta’s Reality Labs division, focused on metaverse development, continued to operate at a loss. The unit reported a $4.5 billion loss in Q2, bringing its total losses since 2019 to nearly $60 billion. Despite these ongoing losses, Meta’s management expects Reality Labs’ operating losses to increase further as they continue to invest in augmented and virtual reality technologies.
In response to the growing importance of AI in its business strategy, Meta has raised the lower end of its annual capital expenditure outlook for 2023. The new range is set at $37 billion to $40 billion, up from the previous lower bound of $35 billion. The company noted that infrastructure costs are expected to be a significant driver of expense growth next year.
Analysts have responded positively to Meta’s Q2 results. KeyBanc Capital Markets reiterated an Overweight rating on Meta stock and raised their price target from $540 to $560. They believe that Meta’s core business is already seeing returns from AI investments, with potential for further growth in the medium term.
Similarly, Stifel analysts increased their target price on Meta shares from $550 to $590. While acknowledging that the elevated capital expenditure outlook was a “wrinkle” in the report, they expressed confidence that Meta’s AI initiatives are already yielding positive results in terms of improved engagement and advertiser tools.
