Meta Platforms' Upcoming Earnings Report Shines Focus On Direxion's METU, METD ETFs

With one of the world’s biggest innovators about to release its second-quarter earnings report on Wednesday, traders from opposing sides will eagerly await the results. Wall Street analysts are looking for social media giant and tech juggernaut Meta Platforms Inc. META to deliver earnings per share (EPS) of $5.86 on revenue of $44.58 billion. Expectations have risen from the prior year, when Meta posted EPS of $5.16 on sales of $39.07 billion.

On the surface, Meta would seem to have momentum working in its favor. The last time the company failed to meet expectations for the bottom line was in February 2023. Furthermore, the last time Meta could not hit analysts’ consensus targets on both earnings and sales was in the second quarter of 2022.

Fundamentally, Meta may be able to appease both experts and investors through its decided focus on artificial intelligence. Earlier this month, CEO Mark Zuckerberg confirmed that Meta will invest hundreds of billions of dollars into computing resources as it chases superintelligence. Among the specific projects that Zuckerberg laid out is Prometheus, a multi-gigawatt AI supercomputing cluster expected to come online in 2026. A second and even larger cluster called Hyperion is also in the works.

Another catalyst that could potentially support META stock is the underlying advertisement business. At the moment, the tech stalwart owns one of the world’s largest advertising businesses, generating approximately $166 billion in sector-related revenue over the last 12 months. Even with this massive size and the law of large numbers working against it, Meta managed to accelerate its ad revenue growth rate last year.

Nevertheless, no one company is without flaws or vulnerabilities. While META stock has been an impressive performer over the past few years, some concerns are rising about key business units’ viability. For example, the growing privacy ecosystem under Apple Inc. AAPL could threaten Meta by kneecapping its consumer targeting protocol. Of course, privacy represents a rising issue between the two enterprises.

It should also be noted that not all of Meta’s ventures resonate with target audiences, thereby raising more questions about META stock. In particular, Threads — a text-based social media app launched two years ago — started off with a bang, but the enthusiasm quickly decelerated. Without the apparent ability to consistently generate interest toward new, homegrown initiatives, Meta may be forced into expensive acquisitions for growth.

The Direxion ETFs: Heading into this week’s earnings showdown, traders from both ends of the sentiment spectrum will be looking to profit from their theses. On the optimistic side, investors may consider the Direxion Daily META Bull 2X Shares METU, which seeks the daily investment results of 200% of the performance of META stock. On the other end, pessimists may consider the Direxion Daily META Bear 1X Shares METD, which seeks 100% of the inverse performance of the namesake security.

A key reason for researching Direxion ETFs is convenience. Generally speaking, market participants interested in leveraged or short positions must engage the options market. However, financial derivatives carry complexities that may not be suitable for all traders. In contrast, Direxion ETFs can be bought and sold much like any other publicly traded security, thus creating a shallower learning curve.

Still, prospective traders must be aware of these funds’ unique risks. First, leveraged and inverse ETFs typically encounter greater volatility than funds tracking benchmark indices such as the Nasdaq Composite index. Second, Direxion ETFs are designed for exposure lasting no longer than one day. Holding these ETFs for longer than the recommended period may expose investors to value decay due to the daily compounding effect.

The METU ETF: Since the start of the year, the METU ETF has gained over 26%. However, in the week leading up to the earnings disclosure, the leveraged fund has only gained 1.62%.

• From a bird’s-eye view, METU seems to be performing well, with the price action firmly above the 50-day and 200-day moving averages.
• However, from early June to now, the price action resembles a head-and-shoulders pattern, perhaps warranting caution.

The METD ETF: From the January opener, the METD ETF has struggled, losing more than 23% of value. However, enthusiasm has started to pick up in the past month.

• At the moment, the technical posture of the inverse fund seems ugly, with the price action slipping below the 50 and 200 DMAs.
• However, it’s possible that METD found a temporary bottom late last month. If so, a negative earnings surprise could help drive value in this bearish ETF.

Featured image by Thomas Ulrich from Pixabay.

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