Citi is more bullish than the rest of Wall Street about Meta Platforms. It all comes down to ads.
Analyst Ronald Josey is upping his estimates for Meta’s third-quarter earnings based on new internal Citi data for Reels, the company’s short-video service. The company is expected to report results on Oct. 23.
Josey predicts Meta will deliver $5.48 per share in earnings on $40.7 billion in sales. Both numbers indicate year over year growth will be a percentage point higher than his earlier estimates. The consensus is $5.19 per share in earnings on $40.1 billion in sales, FactSet data show.
The new data show that the number of ad loads — the percentage of ads encountered while watching Reels — has reached 22.2% to date in the third quarter, up 70 basis points from the previous quarter. More than 75% of Meta’s advertisers use Reels, Josey said.
“Given our view that that the online advertising environment, particularly for performance-based platforms like META, is strengthening, we are raising our revenue and profitability projections,” Josey wrote.
Citi has calculated ad load since June 2022 and made similar predictions earlier this year when Meta’s stock was trading around $384.26. The stock closed at 561.35 on Friday, and Josey expects a 15% gain from there.
Citi’s methodology can be questioned. The firm has been manually tracking ads on Reels by scrolling through the first 50 short-form-videos, which is a small sample size compared to the estimated billions of views on Reels videos. And ad load doesn’t tell investors whether advertisers are paying higher prices to place the ad.
Nevertheless, “we believe our tracking does provide an insight into Meta’s Reels product and our data set and experience is relatively in-line with Meta’s commentary around ramping ad load and our industry checks with multiple agencies suggesting similar results,” Josey wrote.