Analysts expect Meta's Q2 revenue to be $38.317 billion, adjusted net income to be $12.927 billion, and adjusted EPS to be $4.864, according to Bloomberg's unanimous expectations.

Meta Platforms is scheduled to release its Q2 earnings on July 31, after the closing bell. Investors are watching closely for updates on AI integration and advertising performance.

Previous Quarter Review

Last quarter, Meta reported a revenue beat of $36.46 billion vs. $36.16 billion expected and an EPS beat of $4.71 per share vs. $4.32 expected.

The company reported the following key numbers.

Family daily active people ( DAP ) – DAP was 3.24 billion on average for March 2024, an increase of 7% year-over-year.

Ad impressions – Ad impressions delivered across Family of Apps increased by 20% year over year.

Average price per ad increased by 6% year over year.

Headcount fell to 69,329 as of March, a 10% decrease year over year.

Nonetheless, Meta ’ s Q1 2024 earnings report met with a cool reception. Its share tumbled after earnings as investors focused on its Q2 2024 sales forecasts, at the lower end of analysts' estimates and after it said it expects its 2024 capital expenses to be higher than anticipated due to its investments in AI.

What to Watch for Q2

Meta's impressions and user growth may taper with ad pricing and election-ad spending to be key drivers for surpassing consensus sales growth expectations of 20% in 2Q. Regulatory challenges in Europe tied to the Digital Markets Act and a lack of traction with its ad-free subscription offering may weigh on sales growth in the region. Though Meta's positioning remains strong in gen AI, a top-line lift from licensing its Llama model to enterprise customers and adoption of subscription chatbot offerings, similar to OpenAI and Gemini Advanced, will be a key focus on the earnings call.

Any jump in capex guidance may raise pressure to curtail losses in the company's Reality Labs segment. The prospect of a Trump re-election could pressure Chinese advertiser spending, which is estimated be a mid-single digit contribution to revenue.

Advertising Performance - Advertising revenues increased by 27% in Q1. The market will look for a similar performance in Q2 2024.

User Engagement Metrics – DAP reached 3.24 billion on average in March 2024, a gain of 7% year over year. Investors will be looking for continued growth in this area.

AI integration and impact - Meta emphasised AI integration in its products, contributing to strong financial results in Q1. Look for updates on how AI is improving user engagement, particularly in areas like Reels, where AI-powered recommendations have led to an 8-10% increase in watch time.

Expenses and profitability - Meta increased its capital expenditure outlook for 2024 to between $35 billion and $40 billion.Watch for any further increases to expense projections and their impact on profitability.

Reality Labs performance – Reality Labs includes virtual, augmented, and mixed reality related consumer hardware, software and content used in developing the MetaVerse. Analysts expect the division to show an operating loss of $4.31 billion for the quarter as it continues to bleed cash.

Forward guidance – Investors will look for guidance on Meta's outlook for Q3 and the rest of 2024, as this will provide insights into the company's expectations for growth and challenges in the coming months.

Analysts' opinions

Facebook parent Meta Platforms has seen its stock momentum slow amid what some market watchers are calling Magnificent Seven "fatigue." But analysts are raising their expectations for the stock ahead of Meta's second quarter report later this month.

Analysts with Jefferies reiterated a buy rating and set a price target of 565, up from 540, for Meta stock in a client note late Monday. That followed a report earlier in the day from Bernstein, whose analysts kept a positive outperform call on Meta and upped their price target to 575, from 565.

Jefferies analyst Brent Thill told clients Monday that Meta has undergone a "valuation reset."

But Thill noted that the lower valuation could help offset tougher sales growth comparisons for Meta. The company is beginning to compare its results against quarters from last year. Its advertising sales accelerated in 2023 and powered its triple-digit stock growth.

Citing checks with industry sources, Jefferies analysts believe Meta can beat expectations with its Q2 results and guidance for the September-ending third quarter.

Bernstein analysts wrote to clients Monday that Meta struggled amid "investor 'fatigue' with the Mag 7 and AI, a crescendo of political winners and losers trading, an uncertain macro, and tougher compares into 2Q and 2H24."

But, "through the noise, data into 2Q signals revenue strength tied to higher Temu global ad spend, while return of key verticals such as gaming and tech should benefit Meta," Bernstein analyst Mark Shmulik wrote.

The number to watch will be Meta's guidance for the current quarter, in Shmulik's view.