Original Author: Xu Chao

Original Source: Wall Street Watch

Meta will release its third-quarter results after the market closes on October 21. The market generally holds an optimistic view on the revenue for the quarter, but the real divergence lies in whether there can be a balance between capital expenditure in 2027 and AI monetization—this will determine the stock price direction after the financial report.

According to Bank of America analyst Justin Post, Meta's third-quarter revenue is expected to be around $63.8 billion, slightly above the market consensus estimate of $63.3 billion. The core basis for this judgment is healthy growth trends indicated by advertising market channel research data. Bank of America maintains a buy rating on Meta with a target price of $810.

Beyond the quarterly performance, the spending path for 2027 is the real focus of this financial report. Meta faces a one-time $10 billion provision related to the attorney general settlement, which will reduce the GAAP operating profit for the third quarter to $11.5 billion, far below the market expectation of $18.6 billion; EPS will also drop to $3.79, compared to the market expectation of $6.08. Excluding this non-recurring item, Bank of America estimates that earnings will be above consensus, but analysts warn that if management suggests that capital expenditures or operating expenses for 2027 will rise further or that the AI monetization process will be delayed, the risk of stock price pressure should not be ignored.

Revenue Side: Advertising Inspection Data Provides Support

The logic for exceeding revenue expectations in this quarterly report is relatively clear. Justin Post points out that the results from channel research in the advertising market are solid, supporting Bank of America's higher-than-consensus revenue forecast. Bank of America estimates $63.8 billion, slightly above the street expectation of $63.3 billion, and analysts believe that implied market expectations may have approached $64 billion.

From the options market perspective, the implied volatility for Meta's financial report is about 4.1%, while the average actual volatility over the past eight quarters has reached as high as 7.4%, indicating that current options pricing is relatively cheap compared to history. Data from Bank of America’s derivatives team shows that Meta's implied volatility score ranks low in long-short screening, reflecting a generally optimistic market outlook on the quarter's results with insufficient volatility expectations.

Distortion in GAAP Profit: Impact of One-Time Settlement Provision

This quarter’s GAAP profit numbers will show significant distortion due to one-time items.

Meta previously announced that due to the "youth protection" lawsuit, the company will recognize $10 billion in settlement-related expenses with the attorney general in the third quarter. Bank of America expects this will lead to a GAAP operating profit in the third quarter dropping to about $11.5 billion, significantly below the market consensus of $18.6 billion; correspondingly, the GAAP EPS is expected to be $3.79, while the general market expectation is $6.08.

Bank of America emphasizes that if this non-recurring provision is excluded, the company’s profitability is actually above consensus levels, and investors need to distinguish between these two sets of data to avoid misreading the profit numbers.

2027 Spending: The Real Test of the Conference Call

The market does not have significant divergence in expectations for quarterly revenue, but what truly makes investors nervous is the mid-term spending path.

Bank of America analysts listed the main risk items for this conference call: first, management hinting at the possibility of further upward movement in capital expenditures or operating expenses for 2027; second, delays in the AI monetization timeline—products like Muse will consume significant computational resources in the near term but have not yet generated direct revenue contributions.

Analysts expect Meta will not provide formal guidance on capital expenditures for 2027 during this call but may offer a qualitative framework.

From a broader perspective, Bank of America equity strategist Savita Subramanian notes that this year, the growth rate of capital expenditures among tech giants has exceeded the revenue growth rate by about 50%, compared to 20%, and the market consensus model relies on the assumption that AI-related revenue will catch up with capital expenditure in the second half of 2027. If the content of Meta's conference call undermines this assumption, it will constitute substantial valuation pressure.

Conference Call Focus: AI Progress and Monetization Path

Aside from spending issues, analysts expect the conference call to focus on several areas: the adoption rate of Muse and the cost per user Token, enterprise-level AI opportunities, large language models, and infrastructure strategy.

Potential positive catalysts include: AI providing additional boosts to the advertising business, disclosures of user traction data for new AI products, and outlooks related to improvements in infrastructure efficiency. Potential risks stem from soft fourth-quarter guidance due to macroeconomic conditions, exchange rates, or diminishing AI dividends, as well as a lack of clarity regarding the AI monetization path for 2027.

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