I am positive on Meta’s Q4 2024 earnings. My estimates take into account robust advertising trends, reports of continued strength in daily active users, potential benefits of AI, and the fact that the company has beaten management’s upper revenue guidance by an average of 2.5% in the latest three quarters.
I am positive on Q4 earnings due to the following;
- Robust ad spend: Magna recently upgraded their forecast for 2024 ad spend growth rate on social media players to 17.9% from 17.5%. Similarly, Group M raised US ad revenue growth rate forecast for 2024 to 9% from 5.8% in December. This upward revisions suggest a better-than expected performance in Q4.
- Tinuiti report: Ad spent among Tinuiti advertisers on Meta Platforms was up 15% y/y during the quarter. Similarly, CPM was up 5% y/y, a shift from the negative decline witnessed in Q3. Given that Meta revenue outperformed Tinuiti Meta ad revenue by an average of 11.22% in the latest three quarters, we are likely to see another strong quarter for Meta.
- Revealbot data on CPM: Revealbot data indicates that Instagram’s CPM rose by around 21.8% quarter over quarter and 32.0% year over year in Q4 to an average of $14.46. Similarly, Facebook CPM was up by around 32.1% quarter over quarter and 32.1% year over year to an average of $14.35 during the quarter.
- Uncertainty on TikTok’s availability in the US. On Jan.19, the law banning TikTok in the US came into effect. Although, President Trump signed an executive order allowing the TikTok to continue operating for another 75 days, there is uncertainty over the legality of the order. Similarly, Trump is lobbying for a joint ownership of TikTok between US and China, which could potentially lower the performance of the app since the algorithm is likely to remain with its parent, Bytedance. These uncertainties could have caused a number of advertisers to shift to the likes of Meta. However, the real benefits of these uncertainties are likely to be felt in 2025.
- Year of intensity: While Meta continues to spend heavily on AI, the management remain committed to its efficiency programs. For instance, the company recently announced that it will layoff 5% of low performing employees as it prepares for a “year of intensity”. While they will replace these low performers, the program will ensure the company operates at an optimal level. Also, the news on Deepseek R1 having been developed within 2 months at a cost of $6 million dollars will embolden the company to be more efficient.
- Strength in daily active users: According to Visible Alpha, analysts estimates for Meta’s Q4 2024 Family of Apps revenue have remained largely unchanged since October due to continued strength in daily active users.
- Analysts are bullish on the quarter: Most analysts are bullish on Meta’s Q4 earnings. Reasons cited include robust ad spending, continued growth in Meta’s share of ad revenue, and continued growth in engagement across Meta Platforms.
- Facebook’s video unification efforts are paying off: Sensor Tower pointed out that time spent on Reels in December 2024 rose 17% from January 2024, indicating that millions of engagement hours are moving to the feature over the period in which Facebook’s unification efforts began.
Risks during the quarter and in 2025 guidance include;
- Rising capex and total expenses: Meta recently announced that it will spend $60-$65 billion in capex in 2025, much higher than the $52 billion that analysts were expecting. Investors will be looking forward to hear more insights on how the company is benefitting from this huge investments. For instance, they will want to hear more about the announced AI Engineer and how the core business is benefitting from AI. If the investors are not satisfied, the stock could fall sharply.
- FX headwinds: Over the past three months, the US dollar index has appreciated by about 6% versus its average trading level in 2024. If the trend continues in 2025, it could lead to an headwind of around $4 billion, based on Meta’s 2023 advertising revenue outside US of about $70 billion (53% of $132 billion). The impact on Q4 2024 results is likely to be less though.
- Strong comps: Meta’s Q4 2023 revenue had grown 24.7%, hence the benefits of weak comps is unlikely to be felt in Q4 2024.
- Issues with Advantage+: Meta’s Advantage+ has been one of the most powerful tools for advertisers. In fact it was said to have helped the company overcome the headwinds caused by Apple’s privacy changes in 2021. However, reports by Tinuiti and others that it’s having issues is not good for the company’s return on ads spend.
Here are management’s and analysts’ expectations;
Management Guidance for Q4 (Revenue): $45.0-$48.0 billion (+12.2% to +19.7%)
Analysts’ Estimate for Q4 (Revenue): $46.97 billion (+17.1%)
Analysts’ Estimate for Q4 (EPS): $6.73 (+26.3%)