Meta Platforms Q3 Earnings Preview: AI In Focus With New Search Engine Plans, Analyst Says Company 'Well Positioned'

A new report that Meta Platforms Inc META is building its own search engine could put a greater emphasis on AI growth when the company reports third-quarter results after market close Wednesday.

Earnings Estimates: Analysts expect Meta Platforms to report third-quarter revenue of $40.27 billion, up from last year's $34.15 billion total in the third quarter, according to data from Benzinga Pro.

The company has beaten analyst estimates for revenue in eight straight quarters.

Analysts expect Meta Platforms to report third-quarter earnings per share of $5.24, up from last year's third-quarter total of $4.39. The company has beaten analyst estimates for earnings per share in six straight quarters.

Guidance from Meta calls for third-quarter revenue to be in a range of $38.5 billion to $41 billion.

What Analysts Are Saying: A new report from The Information details that Meta is developing its own search engine to power the Meta AI chatbot is intriguing for Bank of America analyst Justin Post ahead of the earnings report.

"We think the report makes sense as reducing dependence on large tech peers likely a strategic priority for Meta," Post said.

The analyst said Meta's conference call will likely feature commentary on artificial intelligence and search capabilities.

"The article suggests that by developing its own search engine, Meta aims to reduce reliance on Google Search and Microsoft Bing, which currently provide information for Meta AI."

Post said Meta creating its own search engine would be consistent with the company's long-term goal of reducing "dependence on competitor platforms."

"We think Meta is well positioned to develop internal AI assistant and query response capabilities."

The analyst highlights Meta's large user base and content that could help train its own LLM (large language model).

Post said the news could be a negative for Alphabet down the road, but the stock did not react to the report.

"If users increasingly engage with Meta AI for information, there is a possibility that a portion of internet traffic could shift away from Google Search."

Here are other recent analyst ratings for Meta Platforms and their price targets:

Bernstein: Maintained Outperform rating, raised price target from $600 to $675
Jefferies: Maintained Buy rating, raised price target from $600 to $675
TD Cowen: Maintained Buy rating, raised price target from $600 to $675
Mizuho: Maintained Outperform rating, raised price target from $600 to $650
Cantor Fitzgerald: Reiterated Overweight rating with $670 price target
Goldman Sachs: Maintained Buy rating, raised price target from $555 to $636

Key Items to Watch: Ad impressions and the price per ad will be key metrics, and some will be watching to see if there is strength in the online advertising segment.

Meta reported second-quarter ad impressions and the average price per ad, each up 10% year-over-year.

The progress of Meta's AI growth will be closely observed outside the potential search engine.

"We had a strong quarter, and Meta AI is on track to be the most used AI assistant in the world by the end of the year," Meta CEO Mark Zuckerberg said in second-quarter results.

The company's costs will also be closely watched in the quarter, with Meta raising its 2024 capital expenditures to a range of $37 billion to $40 billion after second-quarter results.

META Price Action: Meta stock was up 2.6% to $593.28 on Tuesday, versus a 52-week trading range of $296.86 to $602.95. Meta stock is up 70.4% year-to-date in 2024.

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