Meta Q2 Earnings: Scotiabank Expects Stronger Monetization Strategy

Meta's Q2 earnings are expected to show revenue benefits from FX tailwinds and stronger ad spending from non-US markets. Scotiabank analyst Nat Schindler anticipates WhatsApp monetization to kick off in 2H, adding 2-3% to run-rate revenue by 2026. However, margins may come under pressure due to depreciation, AI-related hiring, and higher capex. Schindler believes Meta has a path to improving ad ROI through more effective targeting.

Title: Meta Platforms' Q2 Earnings: A Look at Revenue Growth and AI Expansion

Meta Platforms (META) is set to report its Q2 earnings on Wednesday, July 30, which could be a pivotal moment for the social media giant. The company has consistently surpassed earnings expectations, with a streak of 10 consecutive quarters of beating the Zacks EPS Consensus [1]. This impressive track record, coupled with a 20% year-to-date (YTD) gain, has investors eagerly anticipating the upcoming results.

One of the key drivers for Meta's strong performance is its aggressive push into generative AI. According to Zacks Investment Research, Meta's Q2 sales are expected to increase by 14% to $44.69 billion, while earnings per share (EPS) are projected to rise by 12% to $5.80 [1]. Furthermore, the Zacks ESP (Expected Surprise Prediction) suggests that Meta could once again exceed earnings expectations, with estimates pegged at $5.90 per share [1].

Meta's AI infrastructure expansion is another significant factor that could boost its earnings. The company is investing heavily in AI data centers and systems, such as Prometheus in Ohio and Hyperion in Louisiana, which are expected to enhance reasoning and coding capabilities [1]. Additionally, Meta's AI-driven Advantage+ Ads are optimizing targeting and performance, leading to higher advertising revenue [1].

Scotiabank analyst Nat Schindler expects WhatsApp monetization to kick off in the second half of 2025, adding 2-3% to Meta's run-rate revenue by 2026 [2]. However, Schindler also warns that margins may come under pressure due to depreciation, AI-related hiring, and higher capital expenditures (capex). Despite these challenges, Schindler believes that Meta has a path to improving ad return on investment (ROI) through more effective targeting.

MoffettNathanson, another analyst firm, has reaffirmed its Buy rating on Meta and raised its price target from $605 to $810 per share [2]. The analysts cited a stronger advertising outlook and weakening U.S. dollar as tailwinds for future earnings. They also noted that while Meta's Reality Labs have generated significant losses, the stock has significantly outperformed the S&P 500 since the rebranding from Facebook.

In conclusion, Meta Platforms' Q2 earnings are expected to show revenue benefits from foreign exchange (FX) tailwinds and stronger ad spending from non-US markets. Despite potential margin pressures, the company's AI expansion and strategic initiatives are likely to continue driving growth. Investors will be closely watching Meta's earnings report for further insights into its future performance.

References
[1] https://www.barchart.com/story/news/33578142/bull-of-the-day-meta-platforms-meta
[2] https://za.investing.com/news/stock-market-news/deepdive-into-metas-ai-strategy-3799253