Nasdaq 100 forecast: How will Meta Q3 earnings impact Meta stock?

Key takeaways

• Meta forecast to report fastest earnings growth out of Big Tech this season
• Weak comparatives will flatter both top-and-bottom lines this quarter
• Ad pricing on social media platforms shows signs of bottoming-out and will be key to driving sentiment
• Social media business needs to impress to keep pressure off its strategy that is seeing it spend billions on experimental projects, from the metaverse and augmented reality to artificial intelligence
• Meta shares currently testing support level and a miss could see it breakout of current channel

When will Meta release Q3 earnings?

Meta, the owner of Facebook, Instagram and WhatsApp, is scheduled to release third quarter results after US markets close today, on October 25. A conference call is scheduled for 1400 PT today.

Meta earnings consensus

Meta is forecast to report a 20.9% year-on-year rise in third-quarter revenue to $33.51 billion and diluted EPS is expected to more than double to $3.60 from the $1.64 delivered the year before.

Meta earnings preview

Revenue growth will be almost solely down to its social media business. Advertising revenue is now recovering and improving impressions, driven by its shift to Reels, is helping it attract more marketing dollars even if pricing remains weaker.

Wall Street believes ad prices on its platforms will be down around 8.9% from last year. Prices for ads on social media platforms have been recovering slower than other major avenues, such as internet search.

While far from impressive, that would mark a big improvement considering prices have been falling at steep double-digit rates over the past year. That suggests prices are starting to bottom-out, although analysts have become more pessimistic leading up to the results and now don’t believe prices will start to improve until 2024. A beat here would be bullish and suggest conditions are rebounding faster than hoped, while a miss would only entrench fears that pricing power will remain weak for longer.

Meta is forecast to deliver the fastest earnings growth within the group of Big Tech this earnings season, aided by weak comparatives that should continue to flatter the bottom-line over the coming quarters. That is down to a big recovery in margins, helped by its disciplined control with costs that has seen its headcount drop by almost one-fifth over the past year.

It is important that Meta’s core social media business impresses this week to keep the limelight off the billions of dollars being funneled into riskier and untested avenues. Meta has got markets excited with the launch of several new products in recent months, from the new Quest 3 headset and augmented reality Ray-Ban glasses to its new chatbots and AI products driven by its Llama large language model.

Meta has shown its willingness to fully lean into new tech, but the disappointing and very costly entry into the Metaverse and a lacklustre take-off of Threads are examples that highlight it has not executed particularly well on some fronts and that it will have to work even harder to deliver its variety of new initiatives.

That will keep eyes on its Reality Labs unit that homes its activities outside of social media as it keeps burning through cash. Analysts forecast Reality Labs will report a $3.94 billion operating loss in the third quarter. These losses will only be amplified if Meta’s social media business fails to meet expectations, heightening pressure on Meta to deliver and monetise its expensive projects at a quicker pace. The launch of new products has led analysts to believe that Reality Lab losses will swell further in 2024 and see them peaking in 2025, but think it will continue to burn through billions each year for the rest of this decade! That could also heap more pressure on Meta to become more disciplined with costs going forward.

Where next for META stock?

Meta shares are up a whopping 150% in 2023, making it the second best performer in the Nasdaq 100 after recouping the heavy ground lost in 2022.

We can see that Meta rose in a parallel channel for most of the year until we saw the sharp pullback in markets at the end of July. However, we have seen it resume course since the correction bottomed-out in mid-August.

The stock is currently testing the bottom of this channel. A poorly-received set of results is likely to see it break below here and out of the channel. The 50-day moving average is there to provide a potential safety net, but we see $299 as a more solid price to watch considering this is aligned with both the 100-day moving average and several support and resistance points in recent months. Any drop below here risks seeing it move below $294 before that August trough comes back into play.

The immediate upside target is $325, align with the top we saw in late July, followed by the 2023-high of $329.

Nasdaq 100 analysis: Where next?

Meta is one of the largest members of the Nasdaq 100, making it the index to watch ahead of the results.

The index shattered through the supportive trendline that had held firm throughout 2023 on Friday, when the index closed at fresh October-lows. It rebounded yesterday but is back under pressure today. That is bringing the support zone back into play. The index should find support at 14,550 but could sink as low as 14,400 before rebounding. Any slip below here would be significant.

On the upside, the initial target is to move above yesterday’s close at 14,750 and then 14,850 to surpass the ceiling we saw hold throughout the back-end of last month.

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