Bank of America Outlook on Meta's Earnings Report: AI-Driven Advertising Recovery Boosts Growth Potential

According to the Zhitong Finance APP, Bank of America Global Research reiterated its "Buy" rating for Meta Platforms (META.US) in its second-quarter preview report released on July 25, with a target price of $775, indicating an upside potential of 8.4% compared to the current stock price of approximately $714.80. Bank of America expects Meta to report revenue of $45.5 billion and earnings per share of $6.12 in its second-quarter financial report to be announced on July 30, both exceeding the market consensus estimates of $44.589 billion and $5.84, and provided third-quarter guidance in the range of $44 billion to $47.5 billion, suggesting full-year revenue could reach $190 billion, significantly higher than the market expectation of $187.1 billion. Advertising Engine Shows Power Again, AI Investment Becomes Focus Bank of America pointed out that second-quarter advertising revenue is expected to grow 16% year-on-year to $44.533 billion, mainly benefiting from AI-driven advertising personalization (Andromeda) improving ROI, integration of CRM systems with large clients, collaboration with short video platform SFV, increased commercial messaging ads, and gradual growth of Threads and WhatsApp ads. Bank of America's model shows that second-quarter ad impressions are expected to increase by 8% year-on-year, and average ad prices are expected to rise by 7% year-on-year, driving average revenue per user (ARPU) up 10% year-on-year to $13.06. Meanwhile, Reality Labs revenue is expected to decline slightly by 1% year-on-year to $349 million, continuing to be in the investment phase. Concerns on the expense side stem from the expansion of AI talent. Bank of America estimates that if 25% of Meta's net new hires this year are for AI positions, with an average cost of $2 million per person, operating expenses could increase by an additional $3 billion for the year. Coupled with the $1.48 billion acquisition of a 49% stake in Scale AI in June and a further investment of $350 million to increase its stake in EssilorLuxottica by 3% in July to enhance its smart glasses layout, management has hinted that the full-year capital expenditure guidance of $6.4 billion to $7.2 billion may be raised. Bank of America expects that the new depreciation tax reform could bring an incremental $4.5 billion to free cash flow in 2025, partially offsetting the pressure from rising capital expenditures. Users and Engagement: Instagram Continues to Lead Sensor Tower data shows that Instagram's global daily active users (DAU) increased by 4% year-on-year to approximately 345 million in the second quarter, with international users' average daily usage time increasing by 3% to 72 minutes, and U.S. users increasing by 11% to 51 minutes; Facebook's global DAU slightly declined by 0.1% year-on-year, with U.S. DAU down 2%, and international average daily usage time decreasing to 46 minutes. Bank of America believes that Reels and AI recommendation algorithms have significantly contributed to the increase in usage time, but competition from TikTok and YouTube Shorts remains fierce. Valuation and Risks: 24.5 Times 2025 Price-to-Earnings Ratio Still Within Reasonable Range Based on the current stock price of approximately $713, Meta is trading at 24.5 times the 2025 GAAP earnings per share ($26.83), and after excluding the $21.5 billion loss from Reality Labs, the core Facebook business corresponds to a price-to-earnings ratio of only 19 times, lower than the S&P 500's 21.7 times Bank of America derived a target price of $775 using a 26x 2026 GAAP EPS ($29.16) plus net cash, believing that the commercialization potential of AI has not been fully priced in. Potential Catalysts and Risks Coexist Bank of America listed highlights from the second-quarter conference call, including: further validation of the AI advertising engine, Q3 revenue guidance exceeding expectations, roadmap for auto-generated advertising products, signals of demand for smart glasses, and progress in the commercialization of WhatsApp and Threads; risks include lack of return cases for AI investments, advertising revenue falling short of high expectations, tightening EU DMA regulations, tariff impacts on advertising budgets in the second half of the year, slowing growth of Reels, and new antitrust legislation. Overall, Bank of America believes that Meta, with its scale of 3 billion users and depth in AI technology, remains one of the most attractive AI monetization platforms, with strong short-term performance likely to bolster market confidence, maintaining a "Buy" rating