'Reels, Messaging, and AI:' What Wall Street analysts expect from Meta as it gears up for first-quarter earnings

• Meta Platforms will report its first-quarter earnings on Wednesday after the closing bell.
• Wall Street is optimistic about the social media firm's result, citing optimism around AI and ad spending.
• Some see growth slowing in the coming quarters and highlighted a need for new catalysts.

Meta Platforms has had a winning year so far, with the stock up 40% and sentiment upbeat ahead of its first-quarter report on Wednesday. 

The firm has benefited strongly from rising enthusiasm for artificial intelligence, while Wall Street has highlighted the the company's ad strength, with expected spending momentum set to boost results.  

Here's what Wall Street expects from Meta's first-quarter earnings after the closing bell on Wednesday:

Wells Fargo: In need of a new catalyst

Wells Fargo has projected ad-led strength in the first-quarter, with Meta benefiting from a robust e-commerce environment.

For this reason, the bank modestly boosted the firm's revenue growth forecast to above consensus levels, though it expects the trend to moderate in the second quarter. By then, the market will be on the lookout for another product-cycle catalyst to keep ad momentum up.

"See sustainable multiple expansion driven by clear engagement and product catalysts to support the next leg of META share growth, as positive revision cycle driven by macro tailwinds moderates. We view WhatsApp as an under-appreciated asset w/ sizable potential, should Meta invoke more direct monetization beyond Click-to-Message ads," analysts led by Ken Gawrelski said. 

Wells Fargo rates Meta at "Overweight" with a $600 price target.

RBC: well-appreciated and well-owned

RBC sees more strength ahead for Meta as ad volume growth outpaces peers.

For instance, the bank noted that Instagram Reels ads have continued ramping up, increasing 22% from January's 16.4%. That's while competitors such as TikTok have watched ad loads decline. 

With sentiment staying strong, RBC also expects mid-teen growth to look achievable if second-quarter earnings expectations are met. 

"META is well-appreciated & well-owned, however, solid engagement trends, industry-leading marginal conversion, new ad units and a growing moat still offer very attractive characteristics of an earnings compounder returning capital with open-ended AI optionality, (particularly compute capacity optionality which we think is underappreciated)," analysts led by Brad Erickson wrote last Thursday. 

Some pullback could occur in the first half of the year given China's economic slowdown, which could impact ad spending.

RBC rates Meta at "Outperform" with a $600 price target.

Goldman Sachs: "favored for the long-term

Goldman expects digital advertising to stay strong in the forward twelve months, boosting its first-quarter outlook on Meta. 

The sentiment comes as ad dollars shift into digital channels, and digital platform products — such as short-form videos —  continue to improve. The bank highlighted the fact that Instagram Reels has reached revenue neutrality, and should remain a key revenue growth tailwind over the coming years. 

"We remain constructive on META long term but recognize that there may be less identifiable catalysts with this earnings report when compared to the heightened investor debates (especially on the topic of rate of revenue deceleration),"  

Goldman Sachs rates Meta at "Buy" and holds a 12-month price target of $555.

Bank of America: Product surprises, revenue momentum ahead

Bank of America is betting on first-quarter upside from higher ad spending, driven up by seasonal events, such as the Leap Year and Easter. 

In a note last week, the bank also emphasized that Meta is still in the first inning of an AI-led monetization cycle, and thinks that the firm's AI assets are underappreciated by its market price.

"We remain positive on Meta and reiterate our thesis that Reels, Messaging, and AI driven ad improvements are still early, and could lead to positive product surprises & revenue momentum in 2024," analysts Justin Post and Nitin Bansal said.

Down the road, Meta could also be the leading winner from TikTok limitations, they said, with a ban on the app moving forward in Washington.

Bank of America rates Meta at "Buy" with a $550 price target.

JPMorgan: An ad leader, but caution ahead

Although Meta remains a top idea among JPMorgan analysts, they highlighted concern about cooling growth prospects after the first quarter.

"META remains well-owned, but there is growing caution into earnings on almost-certain growth deceleration beyond 1Q due to tough comps & perception of lack of new drivers vs. '23. We believe slower growth is well-anticipated, & likely taken into account in META's undemanding multiple," analysts led by Doug Anmuth wrote last week.

Among positive first-quarter developments the bank is eyeing is Meta's implementation of AI in its ad stack, which JPMorgan sees as a significant contributor to growth and makes the firm an AI leader. 

Still, this year's ad growth drivers are little changed from 2023, and deceleration won't come as a surprise among investors: "We believe META can exit the year growing in the mid-teens% (we model +13%)."  

JPMorgan rates Meta at "Overweight" with a $535 price target.