Meta Platforms is set to release its second-quarter 2026 earnings report on July 29. Here’s Morningstar’s take on what to look for in Meta’s earnings and the outlook for its stock.
Key Morningstar Metrics for Meta Platforms
- : USD 850.00Fair Value Estimate
- : ★★★★Morningstar Rating
- : WideMorningstar Economic Moat Rating
- : HighMorningstar Uncertainty Rating
Meta Earnings Release Date
- Wednesday, July 29, after the close of trading
What to Watch for in Meta Platforms’ Q2 Earnings
- Meta Compute: Looking for any additional commentary on Meta Compute (the firm’s initiative to sell excess AI computing capacity to third parties). We think investors will be asking questions and waiting for official commentary on whether Meta will formally transition to a neo-cloud business, which would help quell some concerns about AI return on investment.
- Capex vs. cash flow: We believe Meta’s free cash flow will be hit hard this year, but the firm’s initiatives to shore up its finances (potentially by continuing to cut operating expenses like salaries, or reeling in losses in the Reality Labs division) are important.
- Ad sales: The core ad business remains key. We are looking at the firm’s Advantage+ offering, which has a roughly USD 60 billion annualized run rate. We believe this ad automation is important, as it allows Meta to eat further into the overall digital ad ecosystem. Investors have tolerated the high AI spending as the ads business has been firing on all cylinders. In our opinion, the core business needs to keep doing well for the stock to re-rate higher.
- We think Meta stock is still very cheap. Our USD 850 fair value estimate implies a 30% upside from current levels. We think the market is incorrectly pricing a collapse in the firm’s fundamentals. We don’t think this will happen anytime soon, with both topline and profitability holding up better than what the market is pricing in the near to medium term.
The following are excerpts from Morningstar’s company report on Meta Platforms.
Fair Value Estimate for Meta Platforms
With its 4-star rating, we believe Meta’s stock is moderately undervalued compared with our long-term fair value estimate of USD 850. We believe Meta has a strong monetization opportunity ahead of it in Asia and the rest of the world. While we expect advertising sales from North America and Europe to grow steadily, we believe increasingly affluent and growing middle classes in Asia, Africa, and the Middle East will allow Meta to improve its ad monetization in those regions, lifting its overall top line. While we expect Reality Labs sales to grow at a double-digit rate over the next five years, we believe Meta’s advertising juggernaut will remain the primary driver of its business and intrinsic value over our explicit forecast.
Read more about Meta Platforms’ fair value estimate.
Economic Moat Rating
We believe Meta merits a wide moat rating, due to the firm’s intangible assets and the potent network effect around its Family of Apps business. We assign a wide moat rating to this segment, which includes Facebook, Instagram, WhatsApp, and Messenger, as its strong competitive advantage will likely allow the firm to generate returns in excess of its cost of capital over the next two decades.
We believe Meta’s Reality Labs business merits a no moat rating. While the firm’s investments in metaverse and virtual/augmented reality could lead to profitable growth in the future, the segment continues to burn capital for Meta, with operating losses exceeding USD 16 billion in 2023. Given its insignificant size relative to Meta’s overall business, it does not preclude us from viewing the firm as having a wide moat.
Read more about Meta Platforms’ economic moat.
Financial Strength
We view Meta’s financial position as rock-solid. The firm closed out fiscal 2025 with cash and cash equivalents of USD 82 billion, more than offsetting its debt balance of USD 59 billion. While the firm’s investments in AI stand to increase its capital expenditure considerably over the next few years, its advertising business remains a cash-generating machine, churning out tens of billions of dollars of free cash flow on an annual cadence.
Read more about Meta Platforms’ financial strength.
Risk and Uncertainty
We assign Meta an Uncertainty Rating of High. We believe Meta’s investments in unprofitable ventures such as generative AI and Reality Labs add a layer of uncertainty around its business, even as its large and stable advertising business continues to generate substantial cash flows in our forecast. Beyond advertising, these investments cost Meta billions of dollars every year, and a profitable monetization strategy for both investments remains elusive. We remain uncertain about the long-term value accretion these investments stand to provide Meta. While there are antitrust concerns around Meta’s business, we view an often-hypothesized breakup of Meta’s applications into separate businesses as unlikely.
The firm’s lack of effort to maintain adequate data privacy and security represents an environmental, social, and governance risk. Also, the broader impact of social media on its users’ mental health, especially that of teenagers, is also a pertinent ESG risk for Meta as potential regulation could hit the firm’s advertising business.
Read more about Meta Platforms’ risk and uncertainty.
META Bulls Say
- Meta’s core advertising business has benefited greatly through improved ad targeting and content recommendation algorithms as well as a secular increase in digital advertising spending.
- Meta’s scale, with the majority of the world’s internet-connected users accessing its applications, allows it access to high-quality user data which it can package and sell to advertisers.
- The firm has an opportunity to drive ad inventory growth, leveraging new products such as Threads while also improving its monetization of ads on nascent features like Stories and Reels.
META Bears Say
- Meta’s investments in Reality Labs and generative AI stand to cost the firm billions annually, taking some of the shine off its overall business.
- The firm has a monopoly case against it in the United States, which could potentially force it to break up, severing some of the scale advantages it has built up over time.
- Meta has disproportionately benefited from increased ad spending by Chinese retailers including Temu and Shein. A slowdown in spending by these firms could hit Meta’s growth.
This article was compiled by Irza Waraich.
