Meta Platforms (META): Bullish or Bearish?

Meta Platforms, Inc. (META) is a dominant player in the digital landscape, captivating audiences with its diverse range of apps and expanding user base. With an unwavering commitment to innovation, META stands tall as a trailblazer leveraging Artificial Intelligence’s (AI) power to solidify its industry leadership.

Hence, would it be wise to have a bullish stance on this stock now? Let’s look at its fundamentals to get an idea.

Amid the prevailing macroeconomic challenges, the tech giant reported record profits and comfortably topped Street revenue and EPS estimates in the second quarter of 2023. Its revenue climbed to $32 billion, surpassing analysts’ $31.03 billion projection. Moreover, earnings per share exceeded expectations, reaching $2.98 instead of the anticipated $2.89.

As of June 30, 2023, META’s family Daily Active People (DAP) reached an average of 3.07 billion, rising 7% year-over-year. Likewise, the family Monthly Active People (MAP) grew 6% year-over-year to a robust 3.88 billion. Beyond user metrics, META’s witnessed a remarkable leap in ad impressions delivered across the Family of Apps, registering a 34% year-over-year growth.

Moreover, META’s introduction of Llama 2 on July 18, an open-source language model with Microsoft Corporation (MSFT) as its preferred partner, garnered widespread support from tech, academia, and policy communities. Embracing open innovation, the move positions the company for significant advancements and a stronger foothold in the AI market.

Moreover, the company’s latest launch, Threads, built by the Instagram team, has profoundly impacted the users. It has provided a platform for users to share text updates and engage in public conversations, enhancing META’s presence in the social media landscape and expanding its reach to a broader audience.

In addition, META is eagerly anticipating the upcoming launch of Meta Quest 3, a state-of-the-art virtual and mixed-reality headset featuring higher resolution, improved performance, breakthrough Meta Reality technology, and enhanced comfort. Such remarkable innovations are expected to drive increased sales and profitability for the company.

Shares of META have surged 216.4% over the past nine months and 153.6% year-to-date to close the last trading session at $305.21.

Let’s look at factors that could influence META’s performance in the upcoming months.

Robust Financials

For the second quarter that ended June 30, 2023, META’s total revenue increased 11% year-over-year to $31.99 billion, while its income from operations grew 12.4% from the year-ago value to $9.39 billion. META’s net income and EPS amounted to $7.79 billion and $2.98, representing increases of 16.5% and 21.1%, respectively, from the prior year’s quarter.

Also, its free cash flow stood at $10.95 billion, up 146.2% year-over-year. As of March 31, 2023, the company’s cash and cash equivalents came in at $28.78 billion, increasing 96.1% compared to $14.68 billion for the period ended December 31, 2022.

Solid Historical Growth

META’s revenue grew at 17.1% and 19.9% CAGRs over the past three and five years, respectively. Over the past three years, its EBITDA rose at a CAGR of 9.6%. Furthermore, the company’s total assets and levered FCF increased at CAGRs of 13.9% and 18.2%, respectively, during the same period.

Favorable Analyst Estimates

The consensus revenue estimate of $33.37 billion for the fiscal third quarter (ending September 2023) represents a 20.4% increase year-over-year. The consensus EPS estimate of $3.59 for the current quarter indicates a 118.8% improvement year-over-year. The company has an excellent surprise history, surpassing the consensus revenue estimates in each of the trailing four quarters.

Furthermore, META’s revenue and EPS for the next fiscal year (ending December 2024) are expected to grow 12% and 21.5% year-over-year to $148.43 billion and $16.34, respectively.

High Profitability

META’s trailing-12-month gross profit margin of 79.45% is 60.9% higher than the 49.37% industry average. Its trailing-12-month EBITDA margin of 37.27% is 107.2% higher than the industry average of 17.99%. In addition, the stock’s trailing-12-month net income margin of 18.71% compares to the industry average of 3.38%.

In addition, META’s trailing-12-month levered FCF margin of 16.80% is 120.4% higher than the industry average of 7.62%. Also, its trailing-12-month ROCE, ROTC, and ROTA of 17.36%, 14.04%, and 10.91% compare to the respective industry averages of 3.24%, 3.87%, and 1.54%.

POWR Ratings Show Promise

META’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. META has an A grade for Quality in sync with its higher-than-industry profitability. The stock also has an A for Sentiment, consistent with the favorable analyst estimates. In addition, it also has a B grade for Growth, justified by its solid historical growth.

META is ranked #7 in the 58-stock Internet industry. Click here to access the other ratings of META for Value, Momentum, and Stability.

Bottom Line

META’s impressive second-quarter performance, groundbreaking product launches, and strong partnerships set the stage for substantial expansion in the years ahead. Given the company’s strong financials, profitability, positive analyst sentiment, and impressive growth record, META could be a solid portfolio addition now.

How Does Meta Platforms, Inc. (META) Stack Up Against Its Peers?

While META has an overall POWR Ratings grade of B, one could also check out other stocks within the Internet industry that are overall A (Strong Buy) or B (Buy) rated: Yelp Inc. (YELP), Travelzoo (TZOO), and Expedia Group Inc. (EXPE).

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META shares were trading at $305.19 per share on Thursday afternoon, down $0.02 (-0.01%). Year-to-date, META has gained 153.61%, versus a 17.42% rise in the benchmark S&P 500 index during the same period.

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.

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