Meta Pre-earnings Analysis
The company doesn't need an introduction so let's dive right into what matters.
Investors are focused on spending. Meta has been on a spending rampage in the past twelve months in an attempt to get ahead in the AI race.
This isn't the first time Meta does this. Between 2021-2025, Meta has lost between $60-75 BILLION on their Metaverse & Reality Labs division. This was a painful failure, but luckily, Meta is a cash printing machine thanks to their global reach and advertising business. With over 3.3 billion users, the company dominates the social media landscape and monetizes it like a mafia.
Meta is expected to report $58 billion in Q4, which would be their biggest quarter ever and would represent a 21% increaes in revenue. But revenue growth alone is not enough...the company's spending spree on the AI workforce, infrastructure, Oculus, and Meta Glasses have to be answered for. Zuckerberg got away with his past failures because the company he built has a massive moat, but investors are still skeptical about the new endeavors.
Profitability: Meta’s earnings last quarter took a noticeable hit to net income. Why? The company recorded a one time, non-cash tax charge related to changes in U.S. tax law, which significantly inflated its tax expense for the quarter (you can see it gapped down on the report last quarter). While this weighed heavily on reported earnings in the short term, Meta has stated that the change is expected to reduce its U.S. federal cash tax payments going forward, potentially benefiting future profitability.
Meta's outlook is bullish based on the earnings numbers. The company is set to have a record quarter and is trading at a reasonable 29x - right in line with the S&P 500's average. Although that's on the higher end of the 15-30x sweet spot, it's low compared to the tech industry's average of 38-40x.
Option chain analysis:
Meta's options expiring on 01/30 currently have a 102% implied volatility reading, which translates to about a (+/-) $43 move from the stock. The direction will depend on earnings results.
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