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Meta Platforms Earnings Preview: Reasonably Priced AI Juggernaut
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Meta Platforms (META - Free Report) enters earnings season with a Zacks Rank #2 (Buy) rating, and reports Q2 earnings Wednesday, July 26 after the market closes.
META has made an unbelievable comeback this year, returning 147% YTD and boasting the second-best performance on the S&P 500 besides Nvidia (NVDA - Free Report) .
The company has made a litany of drastic changes over the last twelve months including mass lay-offs, a pivot away from its focus on the metaverse, released a new VR headset, and most recently launched ‘Threads,’ a Twitter competitor.
Threads had an explosive launch a few weeks ago, gaining 100 million signups in record time, as some Twitter users complained of glitches in the twitter app. However, as reported by the Wall Street Journal, user engagement has precipitously fallen 70% since launch. Fortunately, for META, it still has numerous social media apps being used by billions worldwide.
CEO Mark Zuckerberg hasn’t shied away from media this year either, as he and Tesla’s (TSLA - Free Report) Elon Musk have been sparring online, in business, and potentially in person. The two tech titans teased a possible cage match sometime this year, although it has not yet been confirmed.
Meta Platforms and Zuckerberg have been on a sentiment roller coaster since inception with investors and the public alike often swinging from love to hate regarding the company and CEO. However, META and its brands have long been gushing cash and growing nicely. With 3 billion DAUs users across platforms, META is likely to produce considerable returns for investors for years to come.
Even after the tremendous run up the stock has experienced this year, I believe it still has a very reasonable valuation, making it an appealing option for investors today.
Image Source: Zacks Investment Research
AI Developments
With 3 billion DAUs, Meta Platforms access to data is unprecedented, and thus its potential use cases for AI are numerous. Zuckerberg also recently announced that Meta would be making its AI codebase open source, which he believes will create a rich ecosystem by empowering enthusiasts and developers.
This approach is different from competitors Microsoft (MSFT - Free Report) and Alphabet (GOOGL - Free Report) , who have had the jump on the rest of tech, especially Microsoft with its OpenAI investment and ChatGPT product.
Furthermore, just this week, Meta Platforms and Microsoft announced a partnership to support Llama 2 (Meta’s LLM algorithm) on Microsoft Azure and Windows.
Meta is planning to leverage AI to effectively connect people over Facebook, Instagram, WhatsApp, and Messenger more succinctly. The company is exploring chat experiences in WhatsApp and Messenger, visual creation tools for posts in Facebook and Instagram and ads. Gradually, it is expected to introduce AI for video and multi-modal experiences. Meta believes AI tools will improve business messaging experience and customer support. The company is also relying on AI oriented technologies to strengthen its footprint in metaverse.
Earnings Estimates
META’s earnings revisions trend has skyrocketed higher since late last year, and it along with the stock price have not looked back since. The Zacks’s Earnings ESP is projecting a 5.83% beat at next Wednesday's report.
Current quarter earnings are projected to grow 16.7% YoY to $2.87 per share, and sales are expected to grow 7.1% to $30.9 billion over the same period. FY23 earnings are forecast to climb 22.4% to $12.03 per share and sales are expected to increase 9.5% YoY. These are fantastic expectations for such a mature business.
Image Source: Zacks Investment Research
Valuation
It is hard to imagine, but META was trading below 10x forward earnings late last year, an unbelievable discount for an industry leading stock. Today, it is trading at a one-year forward earnings multiple of 25.2x, which is above the market average of 21.3x and below its 10-year median of 29x.
Image Source: Zacks Investment Research
Bottom Line
From a tactical perspective, I think it would be wise to wait for Meta Platforms to report its earnings before buying shares. After such an epic run up, especially in the tech sector, earnings may be a sell the news event. In that case, investors should seriously consider whether META fits in their portfolio as the company has a fair valuation and promising outlook.
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Meta Platforms Earnings Preview: Reasonably Priced AI Juggernaut
Meta Platforms (META - Free Report) enters earnings season with a Zacks Rank #2 (Buy) rating, and reports Q2 earnings Wednesday, July 26 after the market closes.
META has made an unbelievable comeback this year, returning 147% YTD and boasting the second-best performance on the S&P 500 besides Nvidia (NVDA - Free Report) .
The company has made a litany of drastic changes over the last twelve months including mass lay-offs, a pivot away from its focus on the metaverse, released a new VR headset, and most recently launched ‘Threads,’ a Twitter competitor.
Threads had an explosive launch a few weeks ago, gaining 100 million signups in record time, as some Twitter users complained of glitches in the twitter app. However, as reported by the Wall Street Journal, user engagement has precipitously fallen 70% since launch. Fortunately, for META, it still has numerous social media apps being used by billions worldwide.
CEO Mark Zuckerberg hasn’t shied away from media this year either, as he and Tesla’s (TSLA - Free Report) Elon Musk have been sparring online, in business, and potentially in person. The two tech titans teased a possible cage match sometime this year, although it has not yet been confirmed.
Meta Platforms and Zuckerberg have been on a sentiment roller coaster since inception with investors and the public alike often swinging from love to hate regarding the company and CEO. However, META and its brands have long been gushing cash and growing nicely. With 3 billion DAUs users across platforms, META is likely to produce considerable returns for investors for years to come.
Even after the tremendous run up the stock has experienced this year, I believe it still has a very reasonable valuation, making it an appealing option for investors today.
Image Source: Zacks Investment Research
AI Developments
With 3 billion DAUs, Meta Platforms access to data is unprecedented, and thus its potential use cases for AI are numerous. Zuckerberg also recently announced that Meta would be making its AI codebase open source, which he believes will create a rich ecosystem by empowering enthusiasts and developers.
This approach is different from competitors Microsoft (MSFT - Free Report) and Alphabet (GOOGL - Free Report) , who have had the jump on the rest of tech, especially Microsoft with its OpenAI investment and ChatGPT product.
Furthermore, just this week, Meta Platforms and Microsoft announced a partnership to support Llama 2 (Meta’s LLM algorithm) on Microsoft Azure and Windows.
Meta is planning to leverage AI to effectively connect people over Facebook, Instagram, WhatsApp, and Messenger more succinctly. The company is exploring chat experiences in WhatsApp and Messenger, visual creation tools for posts in Facebook and Instagram and ads. Gradually, it is expected to introduce AI for video and multi-modal experiences. Meta believes AI tools will improve business messaging experience and customer support. The company is also relying on AI oriented technologies to strengthen its footprint in metaverse.
Earnings Estimates
META’s earnings revisions trend has skyrocketed higher since late last year, and it along with the stock price have not looked back since. The Zacks’s Earnings ESP is projecting a 5.83% beat at next Wednesday's report.
Current quarter earnings are projected to grow 16.7% YoY to $2.87 per share, and sales are expected to grow 7.1% to $30.9 billion over the same period. FY23 earnings are forecast to climb 22.4% to $12.03 per share and sales are expected to increase 9.5% YoY. These are fantastic expectations for such a mature business.
Image Source: Zacks Investment Research
Valuation
It is hard to imagine, but META was trading below 10x forward earnings late last year, an unbelievable discount for an industry leading stock. Today, it is trading at a one-year forward earnings multiple of 25.2x, which is above the market average of 21.3x and below its 10-year median of 29x.
Image Source: Zacks Investment Research
Bottom Line
From a tactical perspective, I think it would be wise to wait for Meta Platforms to report its earnings before buying shares. After such an epic run up, especially in the tech sector, earnings may be a sell the news event. In that case, investors should seriously consider whether META fits in their portfolio as the company has a fair valuation and promising outlook.