Meta Traders Near 200-day SMA Ahead of Q2 Earnings

In 2024, Meta Platforms, formerly Facebook, is up over 31%,nearly double the Nasdaq’s performance

• Meta Platforms is scheduled to report Q2 earnings on Wednesday, July 31, after the market close.

• The company’s artificial intelligence roadmap is in focus for investors as industry competition heats up.

• Meta’s expected move for earnings based on options pricing is 44 points, or 9.6% of today’s stock price.

Meta Platforms (META) is scheduled to report second-quarter earnings after the market closes on Wednesday, July 31.

Since the start of the year, Meta, formerly Facebook, is up over 31%. That is nearly double the Nasdaq’s performance for the year, which is currently up 15%.

A risk-off move over the past two weeks of trading has dragged Meta stock nearly 15% lower from its all-time high set just earlier this month at 542.81.

Will the company’s financial results put the stock back on track?

Meta numbers: What do investors expect?

Investors expect Meta to post earnings per share (EPS) of $4.72 for the quarter ending in June, according to Yahoo Finance. That would be up from an EPS of $2.98 last year. Revenue for Q2 is expected to come in at $38.3 billion, up from $30.4 billion last year.

EPS estimates for Meta have increased over the last 90 days, rising 28 cents from $4.44. Analysts are mixed on the stock, with an average one-year price target of $530.03. We’ve also seen a number of firms reiterating and maintaining “outperform” and “buy” ratings on the stock.

As always, Meta investors are keen to hear details on the number of daily active users for its apps, which mainly consist of Facebook, Instagram and WhatsApp. Meta estimated last quarter that 3.2 billion people use at least one Meta app per day, with recent growth driven by WhatsApp.

Artificial intelligence efforts are also on the radar. On Tuesday, Meta released Llama 3.1—representing a significant upgrade to Llama 3, which was released earlier this year. The company describes Llama 3.1 as “the first frontier-level open source AI model.” It has 405 billion parameters trained on Nvidia (NVDA) GPUs.

Meta is taking an open-source approach in the hope it will accelerate market adoption vs. proprietary models like OpenAI’s ChatGPT. While that may help with market penetration, it will likely also come alongside a lower return on investment. The strategy appears to focus on growth now and revenue later.

Spending will likely influence the stock price following the results. Last quarter, Meta spent $6.7 billion on capital expenditures, and the outlook for the year is $35 to $40 billion. It is building out its AI infrastructure and expects spending to increase next year.

Last quarter, Meta forecasted full-year expenses for 2024 at $96 billion to $99 billion. Family of Apps accounted for 81% of Meta’s overall expenses last quarter, according to its financial statements. Family of Apps revenue grew 27% year over year to $36 billion in Q1, and ad revenue from that segment was $35.6 billion, up 27% over the same period.

Alphabet (GOOG) reported earlier this week that its advertising sales revenue rose 11% over the past year, suggesting strength in the ad placement market.

Trading Meta through earnings

Meta is down nearly 10% since July 1 amid a risk-off move across the broader market. Meta stock was hit harder than most of its Mag Seven counterparts. Amazon (AMZN), which reports earnings on Aug. 1, is down 6% this month, while Microsoft (MSFT) is down 5.3% over the same time. MSFT reports earnings July 30.

The expected move for Meta, based on options pricing, is +/- 44 points for the Aug. 2 expiration, or 9.6% of the current stock price. Implied volatility (IV) is elevated compared to the past year, with the implied volatility rank (IVR) at 72.1 as of today.

An iron condor is one hypothetical trade that will capture the elevated premium if the trader expects Meta to remain within that expected move range. An iron condor with the short strikes set just beyond the expected move at 415 and 502.5 for the Aug. 2 expiration would generate a max profit of $152 and a max loss of $345, with a 60% probability of profit (POP).

Technically, Meta is trading near its 200-day simple moving average (SMA). The SMA sat 6%, or 27 points, below a price late this morning of 456.28. A move below the SMA would likely threaten further downside, given the indicator’s market visibility.

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater

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