Stock prices resist decline, expectations heat up: Meta's financial report faces higher thresholds

According to Zhitong Finance APP, Facebook's parent company Meta Platforms (META.US) will announce its latest quarterly results on Thursday morning Beijing time, but to satisfy discerning investors, the company's performance faces a high bar. Wall Street expects Meta's revenue for this quarter to reach $41.38 billion, a 14% increase from the same period last year. The GAAP earnings per share are expected to be $5.27, up 12% from last year.

In this year's market sell-off that has severely impacted the industry, the company's stock price decline is the smallest among all major tech companies. Meanwhile, as there is high uncertainty about how Trump's tariffs will affect the digital advertising business, Alphabet (GOOGL.US) reported better-than-expected results last week, raising expectations for the digital advertising ecosystem. However, Snap (SNAP.US) reported results on Tuesday that heightened concerns about declining advertising prices.

Brian Mulberry, a portfolio manager at Zacks Investment Management, stated, "Alphabet's better-than-expected results put a lot of pressure on Meta. It will be interesting to see what their advertising business looks like. Based on Google's performance, there will definitely be some increasingly high expectations."

As earnings season arrives, tech stocks are in a turbulent period, facing both adverse factors from tariffs and questions about whether the largest tech companies will have to cut some of their massive artificial intelligence spending plans. Meanwhile, Meta is facing antitrust trials in the U.S. and Europe.

Legal and regulatory disputes have long plagued Meta, and this week the EU fined the tech giant €200 million ($227.5 million) for violating the Digital Markets Act. Meta stated that it plans to appeal the fine. Similarly, this month, Meta's antitrust trial began. The U.S. Federal Trade Commission (FTC) is seeking to force the company to sell or spin off Instagram or WhatsApp, claiming that Meta has engaged in "illegal acquisitions or burial plans to maintain its dominance" by acquiring "innovative competitors."

So far, Meta's stock price has not been hit as hard as other tech giants among the "Magnificent Seven." Although the stock has significantly declined from its peak in February, it has only dropped about 5% year-to-date, making it the best-performing large tech stock. The stock currently has an expected price-to-earnings ratio of about 21 times, roughly in line with its 10-year average and lower than the Nasdaq 100 index's 23 times.

Investors will seek guidance on the impact of the trade war on advertising spending and Meta's business in China. According to documents submitted by Meta, the Chinese market accounts for 11% of the company's total revenue in 2024. Benchmark analysts led by Mark Zgutowicz indicated that most of the revenue may be driven by Temu and Shein, both of which have raised prices due to tariffs Bloomberg analyst Mandeep Singh wrote in a report on April 14: "Meta's advertising pricing growth may face headwinds, as major Chinese advertisers like Temu and Shein may withdraw amid the escalating US-China trade war."

However, analysts currently expect this will not have a significant impact on the first quarter, as they believe Google's performance is evidence of this. In a report on April 25, Bank of America analysts led by Justin Post noted that YouTube's revenue remained consistent during this period, which is a "slightly positive interpretation" for Meta's advertising revenue.

Ken Mahoney, CEO of Mahoney Asset Management, stated: "Advertising sales have not plummeted, and Meta's marketing is more targeted." He added that both companies have avoided some concerns about tariffs and supply chains as they focus on software rather than hardware.

Alphabet also announced that its board has authorized a $70 billion buyback and increased its dividend, returning some cash from its massive balance sheet to investors. Investors will closely watch whether Meta will take similar actions.

Mulberry commented on Google's buyback: "If they were really concerned about revenue and growth slowing, they would keep cash on hand to maintain liquidity to adapt to changes in the economic environment."

Capital expenditure is also a primary consideration for Meta's performance. Earlier this year, the company indicated that it expects to spend up to $65 billion on AI-related projects and core business by 2025, significantly higher than Wall Street's previous expectations. Given the current macroeconomic backdrop, this figure is questionable. However, if the spending plan stays on track, it may indicate that the company sees future growth in AI.

Mahoney stated: "Amid news impacts, AI spending continues to grow, and competition with hyperscale companies is ongoing." He added that he expects Meta to reaffirm its commitment to AI and its substantial spending commitments.

However, if Meta provides any forward-looking guidance, it may face trouble. The positive reaction to Alphabet's earnings report is partly due to the company not providing forward-looking expectations. This has become a theme of the earnings season, as many companies have significantly cut or canceled future guidance, stating that they cannot predict the future given the current uncertainty around tariffs