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Meta Earnings Review: Time to Take Profits, or Hold Tight?
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Meta Platforms (META - Free Report) , the strongest performing stock in the S&P 500 YTD reported earnings Wednesday, after the market closed. After experiencing a nearly -80% drawdown in 2022, META has made an epic comeback, now up 99% YTD.
Meta Platforms is a Zacks Rank #1 (Strong Buy) stock, meaning analysts have been consistently upgrading earnings expectations.
Image Source: Zacks Investment Research
Earnings Results
Meta easily beat both Q1 sales and earnings expectations, however expectations were quite low. Meta reported EPS of $2.20 per share, much better than analysts’ expectations of $2.03 per share, but that number reflects a -19% decline YoY. While it’s great to see a beat, Meta experienced a large decline in earnings since last year.
Revenue of $28.7 billion also beat estimates of $27.7 billion and showed a 3% increase YoY. This demonstrated a strong recovery as the three prior quarters showed a decline in revenue.
Proprietary metrics for META were quite strong. Facebook daily active users were up 4% YoY to 2.04 billion, and DAUs for all META apps (Instagram, Whatsapp, Messenger etc.) was up 5% YoY to 3.02 billion. Ad data showed tremendous strength in the quarter as well. Across Meta’s apps, ad impressions increased 26% YoY and price per ad decreased -17% YoY.
The increases in app usage and ad data were the real highlights of the report. But the financials are a bit concerning to me. Seeing earnings drop so precipitously is a red flag. First quarter 2023 was not particularly bad for business spending, so if there were to be a considerable drop in economic activity, META could be vulnerable.
Technical Analysis
One way that I have been gauging various stock charts is based on their price action around pre-Covid highs, and Covid lows. After this earnings report, META has now cleared its pre-Covid highs, which is definitely a bullish development.
But after a 100% runup in the stock, and YoY declines in earnings, I think it is reasonable to be cautious. If you already own the stock, it may be prudent to take some profits, or perhaps add a trailing stop loss to the position. The pre-Covid level of $220, is probably a good line in the sand for META going forward.
Below that level and it is possible to see some choppy, or downward action. But above there, momentum may continue to carry it even higher. So, while I am not bearish META stock, I do remain cautious in the near-term.
Image Source: TradingView
Long-Term Fundamentals
I have explained why I am cautious near-term on META, but I still believe it is an outstanding company and good stock for the long-term. Meta boasts an awesome business model, with fat margins, and products that 3 billion people use daily. Its reach, and general value add to its users and customers is truly exceptional.
Furthermore, while CEO Mark Zuckerberg has received a huge amount of criticism over his efforts in the metaverse and VR, I think it’s possible that his investments will pay out in the future. META isn’t alone in its VR endeavors, as many of the big tech companies are venturing in.
Apple (AAPL - Free Report) is reported to be releasing a mixed reality headset within the next few months. Apple does not have a history of following hot trends or rushing to market. So, if they are planning to release something, you know a lot of forward-looking thought has gone into it.
If VR does become the next computing platform, say like the smartphone, Meta will be way ahead of the competition. Zuckerberg hasn’t wavered in his commitment either. While he has scaled back media and efforts around the product, Meta’s Reality Labs still spent $4 billion in Q1.
Valuation
META is trading at a one-year forward earnings multiple of 20x, which is above the market average of 19x, and below its five-year median of 23x. Even after the huge rally this last year, 20x earnings is a reasonable valuation for a company as well positioned as META.
Image Source: Zacks Investment Research
Bottom Line
Meta has been on quite a ride over the last few years. It seems to be that stock that is always swinging from love to hate for investors, even since its IPO. But the fundamentals of the business remain robust. There are not many companies that can say nearly half the world uses its product on a daily basis.
While there may be some choppiness ahead for META stock, over the long-term it will likely continue to delight investors who have the stomach for it.
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Meta Earnings Review: Time to Take Profits, or Hold Tight?
Meta Platforms (META - Free Report) , the strongest performing stock in the S&P 500 YTD reported earnings Wednesday, after the market closed. After experiencing a nearly -80% drawdown in 2022, META has made an epic comeback, now up 99% YTD.
Meta Platforms is a Zacks Rank #1 (Strong Buy) stock, meaning analysts have been consistently upgrading earnings expectations.
Image Source: Zacks Investment Research
Earnings Results
Meta easily beat both Q1 sales and earnings expectations, however expectations were quite low. Meta reported EPS of $2.20 per share, much better than analysts’ expectations of $2.03 per share, but that number reflects a -19% decline YoY. While it’s great to see a beat, Meta experienced a large decline in earnings since last year.
Revenue of $28.7 billion also beat estimates of $27.7 billion and showed a 3% increase YoY. This demonstrated a strong recovery as the three prior quarters showed a decline in revenue.
Proprietary metrics for META were quite strong. Facebook daily active users were up 4% YoY to 2.04 billion, and DAUs for all META apps (Instagram, Whatsapp, Messenger etc.) was up 5% YoY to 3.02 billion. Ad data showed tremendous strength in the quarter as well. Across Meta’s apps, ad impressions increased 26% YoY and price per ad decreased -17% YoY.
The increases in app usage and ad data were the real highlights of the report. But the financials are a bit concerning to me. Seeing earnings drop so precipitously is a red flag. First quarter 2023 was not particularly bad for business spending, so if there were to be a considerable drop in economic activity, META could be vulnerable.
Technical Analysis
One way that I have been gauging various stock charts is based on their price action around pre-Covid highs, and Covid lows. After this earnings report, META has now cleared its pre-Covid highs, which is definitely a bullish development.
But after a 100% runup in the stock, and YoY declines in earnings, I think it is reasonable to be cautious. If you already own the stock, it may be prudent to take some profits, or perhaps add a trailing stop loss to the position. The pre-Covid level of $220, is probably a good line in the sand for META going forward.
Below that level and it is possible to see some choppy, or downward action. But above there, momentum may continue to carry it even higher. So, while I am not bearish META stock, I do remain cautious in the near-term.
Image Source: TradingView
Long-Term Fundamentals
I have explained why I am cautious near-term on META, but I still believe it is an outstanding company and good stock for the long-term. Meta boasts an awesome business model, with fat margins, and products that 3 billion people use daily. Its reach, and general value add to its users and customers is truly exceptional.
Furthermore, while CEO Mark Zuckerberg has received a huge amount of criticism over his efforts in the metaverse and VR, I think it’s possible that his investments will pay out in the future. META isn’t alone in its VR endeavors, as many of the big tech companies are venturing in.
Apple (AAPL - Free Report) is reported to be releasing a mixed reality headset within the next few months. Apple does not have a history of following hot trends or rushing to market. So, if they are planning to release something, you know a lot of forward-looking thought has gone into it.
If VR does become the next computing platform, say like the smartphone, Meta will be way ahead of the competition. Zuckerberg hasn’t wavered in his commitment either. While he has scaled back media and efforts around the product, Meta’s Reality Labs still spent $4 billion in Q1.
Valuation
META is trading at a one-year forward earnings multiple of 20x, which is above the market average of 19x, and below its five-year median of 23x. Even after the huge rally this last year, 20x earnings is a reasonable valuation for a company as well positioned as META.
Image Source: Zacks Investment Research
Bottom Line
Meta has been on quite a ride over the last few years. It seems to be that stock that is always swinging from love to hate for investors, even since its IPO. But the fundamentals of the business remain robust. There are not many companies that can say nearly half the world uses its product on a daily basis.
While there may be some choppiness ahead for META stock, over the long-term it will likely continue to delight investors who have the stomach for it.