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Can META's Solid Q3 Earnings Beat & AI Focus Push the Stock Higher?
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Meta Platforms (META - Free Report) reported third-quarter 2024 earnings of $6.03 per share, beating the Zacks Consensus Estimate by 16.18%. The figure surged 37.4% year over year.
META’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 11.34%.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Revenues of $40.589 billion beat the Zacks Consensus Estimate by 0.95% and increased 18.9% year over year. At constant currency (cc), revenues soared 23% year over year.
Following third-quarter earnings, META shares fell more than 3% in after-hours trading. Meta Platforms’ shares have gained 67.2% year to date (YTD), outperforming the Zacks Computer & Technology sector’s return of 27.6%.
Meta Platforms, Inc. Price, Consensus and EPS Surprise
Meta Platforms shares have also outperformed most of its “Magnificent 7” peers, including Apple (AAPL - Free Report) , Alphabet (GOOGL - Free Report) , Amazon (AMZN - Free Report) , Microsoft, and Tesla. NVIDIA is the only Magnificent 7 stock that has outperformed META shares over the same timeframe.
Apple, Alphabet, Amazon, Microsoft, and Tesla shares have returned 19.5%, 24.9%, 26.9%, 15.1% and 3.7%, respectively. NVIDIA shares have appreciated 181.4% YTD.
META’s YTD Performance
Image Source: Zacks Investment Research
We believe Meta Platforms’ focus on leveraging AI to improve user engagement will drive top-line growth. This, along with the strong third-quarter earnings beat, is expected to help Meta Platforms’ shares surge higher in the near term.
Before diving into META’s investment prospects, let’s take a glance at its quarterly numbers.
META’s Top-Line Growth Rides on Facebook & Instagram
Geographically, revenues from the United States & Canada, Asia-Pacific, Europe and the Rest of the World (RoW) surged 15.9%, 18.6%, 22.1% and 23.9% on a year-over-year basis, respectively.
Revenues from Family of Apps (99.3% of total revenues), which includes Facebook, Instagram, Messenger, WhatsApp and other services, increased 18.8% year over year to $40.32 billion.
Family Daily Active People or DAP, defined as a registered and logged-in user who visited at least one of the Family products (Facebook, Instagram, Messenger and/or WhatsApp) on a given day, was 3.29 billion, up 4.8% year over year.
The launch of a unified video player and improved AI-powered recommendation has increased time spent on Facebook by 10%. Instagram reels continue to gain adoption, with more than 60% of recommendations coming from original posts in the United States in the reported quarter.
Generative AI Aids META’s Advertising Revenues
Advertising revenues (98.9% of Family of Apps revenues) increased 18.6% year over year to $39.89 billion and accounted for 98.3% of third-quarter revenues. At cc, revenues increased 23% year over year.
Advertising revenues from the United States & Canada, Asia-Pacific, Europe and the RoW surged 16.3%, 17.9%, 21.2% and 23% on a year-over-year basis, respectively.
Ad impressions delivered across Family of Apps increased 7% year over year, and the average price per ad jumped 11% in the reported quarter. Impression growth from Asia-Pacific, the RoW, the United States & Canada and Europe was 9%, 5%, 7% and 5%, respectively.
Meta Platforms’ saw higher retention rates among advertisers using generative AI-powered image expansion, background generation and text generation tools.
Family of Apps’ other revenues soared 48.1% year over year to $434 million, primarily driven by higher business messaging revenue growth from META’s WhatsApp Business platform.
Reality Labs’ revenues (0.7% of total revenues) increased 28.6% year over year to $270 million, driven by higher hardware sales.
META Expands Operating Margin Despite Higher Costs
In the third quarter of 2024, total costs and expenses increased 13.9% year over year to $23.24 billion. As a percentage of revenues, total costs and expenses were 57.3%, significantly down from 59.7% in the year-ago quarter.
In the reported quarter, Family of Apps expenses were $18.5 billion, accounting for 80% of Meta Platforms’ overall expenses. FoA expenses were up 13% year over year, primarily due to higher infrastructure and headcount-related costs.
Reality Labs’ expenses were $4.8 billion, up 21% year over year.
As a percentage of revenues, marketing & sales expenses decreased 150 basis points (bps), while general & administrative expenses also fell at the same rate on a year-over-year basis.
Research & development expenses, as a percentage of revenues, were 27.5%, up 50 bps on a year-over-year basis.
Meta Platforms’ employee base was 72,404 at the end of the third quarter, up 9% year over year.
Operating income of $17.35 billion jumped 26.2% year over year. The operating margin was 42.7%, expanding significantly from 40.3% in the year-ago quarter.
Family of Apps’ operating income surged 24.5% year over year to $21.78 billion. Reality Labs reported a loss of $4.43 billion compared with the year-ago quarter’s loss of $3.74 billion.
META’s Balance Sheet & Cash Flow Remains Strong
As of Sept. 30, 2024, cash & cash equivalents and marketable securities were $70.90 billion compared with $58.08 billion as of June 30, 2024.
Long-term debt was $28.82 billion as of Sept. 30, 2024, compared with $18.39 billion as of June 30, 2024.
Capital expenditures were $9.2 billion in the third quarter compared with $19.37 billion in the previous quarter. Free cash flow was $15.52 billion compared with $10.9 billion reported in the previous quarter.
The company repurchased $8.86 billion of its Class A common stock in the reported quarter and paid a dividend worth $1.26 billion.
META Offers Positive Guidance
Meta Platforms expects total revenues between $45 billion and $48 billion for the fourth quarter of 2024, assuming a neutral forex impact on year-over-year revenue growth.
For 2024, the company still anticipates total expenses between $96 billion and $98 billion. It continues to expect Reality Labs’ operating losses to increase meaningfully year over year.
META expects 2024 capital expenditure in the range of $38-$40 billion, higher than previous guidance of $37-$40 million.
Here’s Why META Shares Are a Buy Post Q3
META’s use of AI bodes well for its near-term and long-term prospects. META’s growing footprint among young adults, driven by improving recommendations, boosts its competitive prowess. AI usage is making it a popular name among advertisers. This is expected to drive top-line growth.
Meta Platforms shares are trading at a premium as suggested by a Value Score of C. In terms of the forward 12-month Price/Sales ratio, META is trading at 8.28X, higher than the Zacks Internet Software industry’s 2.75X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
We believe Meta Platforms’ robust service offerings make the stock too attractive to ignore.
Image: Bigstock
Can META's Solid Q3 Earnings Beat & AI Focus Push the Stock Higher?
Meta Platforms (META - Free Report) reported third-quarter 2024 earnings of $6.03 per share, beating the Zacks Consensus Estimate by 16.18%. The figure surged 37.4% year over year.
META’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 11.34%.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Revenues of $40.589 billion beat the Zacks Consensus Estimate by 0.95% and increased 18.9% year over year. At constant currency (cc), revenues soared 23% year over year.
Following third-quarter earnings, META shares fell more than 3% in after-hours trading. Meta Platforms’ shares have gained 67.2% year to date (YTD), outperforming the Zacks Computer & Technology sector’s return of 27.6%.
Meta Platforms, Inc. Price, Consensus and EPS Surprise
Meta Platforms, Inc. price-consensus-eps-surprise-chart | Meta Platforms, Inc. Quote
Meta Platforms shares have also outperformed most of its “Magnificent 7” peers, including Apple (AAPL - Free Report) , Alphabet (GOOGL - Free Report) , Amazon (AMZN - Free Report) , Microsoft, and Tesla. NVIDIA is the only Magnificent 7 stock that has outperformed META shares over the same timeframe.
Apple, Alphabet, Amazon, Microsoft, and Tesla shares have returned 19.5%, 24.9%, 26.9%, 15.1% and 3.7%, respectively. NVIDIA shares have appreciated 181.4% YTD.
META’s YTD Performance
Image Source: Zacks Investment Research
We believe Meta Platforms’ focus on leveraging AI to improve user engagement will drive top-line growth. This, along with the strong third-quarter earnings beat, is expected to help Meta Platforms’ shares surge higher in the near term.
Before diving into META’s investment prospects, let’s take a glance at its quarterly numbers.
META’s Top-Line Growth Rides on Facebook & Instagram
Geographically, revenues from the United States & Canada, Asia-Pacific, Europe and the Rest of the World (RoW) surged 15.9%, 18.6%, 22.1% and 23.9% on a year-over-year basis, respectively.
Revenues from Family of Apps (99.3% of total revenues), which includes Facebook, Instagram, Messenger, WhatsApp and other services, increased 18.8% year over year to $40.32 billion.
Family Daily Active People or DAP, defined as a registered and logged-in user who visited at least one of the Family products (Facebook, Instagram, Messenger and/or WhatsApp) on a given day, was 3.29 billion, up 4.8% year over year.
The launch of a unified video player and improved AI-powered recommendation has increased time spent on Facebook by 10%. Instagram reels continue to gain adoption, with more than 60% of recommendations coming from original posts in the United States in the reported quarter.
Generative AI Aids META’s Advertising Revenues
Advertising revenues (98.9% of Family of Apps revenues) increased 18.6% year over year to $39.89 billion and accounted for 98.3% of third-quarter revenues. At cc, revenues increased 23% year over year.
Advertising revenues from the United States & Canada, Asia-Pacific, Europe and the RoW surged 16.3%, 17.9%, 21.2% and 23% on a year-over-year basis, respectively.
Ad impressions delivered across Family of Apps increased 7% year over year, and the average price per ad jumped 11% in the reported quarter. Impression growth from Asia-Pacific, the RoW, the United States & Canada and Europe was 9%, 5%, 7% and 5%, respectively.
Meta Platforms’ saw higher retention rates among advertisers using generative AI-powered image expansion, background generation and text generation tools.
Family of Apps’ other revenues soared 48.1% year over year to $434 million, primarily driven by higher business messaging revenue growth from META’s WhatsApp Business platform.
Reality Labs’ revenues (0.7% of total revenues) increased 28.6% year over year to $270 million, driven by higher hardware sales.
META Expands Operating Margin Despite Higher Costs
In the third quarter of 2024, total costs and expenses increased 13.9% year over year to $23.24 billion. As a percentage of revenues, total costs and expenses were 57.3%, significantly down from 59.7% in the year-ago quarter.
In the reported quarter, Family of Apps expenses were $18.5 billion, accounting for 80% of Meta Platforms’ overall expenses. FoA expenses were up 13% year over year, primarily due to higher infrastructure and headcount-related costs.
Reality Labs’ expenses were $4.8 billion, up 21% year over year.
As a percentage of revenues, marketing & sales expenses decreased 150 basis points (bps), while general & administrative expenses also fell at the same rate on a year-over-year basis.
Research & development expenses, as a percentage of revenues, were 27.5%, up 50 bps on a year-over-year basis.
Meta Platforms’ employee base was 72,404 at the end of the third quarter, up 9% year over year.
Operating income of $17.35 billion jumped 26.2% year over year. The operating margin was 42.7%, expanding significantly from 40.3% in the year-ago quarter.
Family of Apps’ operating income surged 24.5% year over year to $21.78 billion. Reality Labs reported a loss of $4.43 billion compared with the year-ago quarter’s loss of $3.74 billion.
META’s Balance Sheet & Cash Flow Remains Strong
As of Sept. 30, 2024, cash & cash equivalents and marketable securities were $70.90 billion compared with $58.08 billion as of June 30, 2024.
Long-term debt was $28.82 billion as of Sept. 30, 2024, compared with $18.39 billion as of June 30, 2024.
Capital expenditures were $9.2 billion in the third quarter compared with $19.37 billion in the previous quarter. Free cash flow was $15.52 billion compared with $10.9 billion reported in the previous quarter.
The company repurchased $8.86 billion of its Class A common stock in the reported quarter and paid a dividend worth $1.26 billion.
META Offers Positive Guidance
Meta Platforms expects total revenues between $45 billion and $48 billion for the fourth quarter of 2024, assuming a neutral forex impact on year-over-year revenue growth.
For 2024, the company still anticipates total expenses between $96 billion and $98 billion. It continues to expect Reality Labs’ operating losses to increase meaningfully year over year.
META expects 2024 capital expenditure in the range of $38-$40 billion, higher than previous guidance of $37-$40 million.
Here’s Why META Shares Are a Buy Post Q3
META’s use of AI bodes well for its near-term and long-term prospects. META’s growing footprint among young adults, driven by improving recommendations, boosts its competitive prowess. AI usage is making it a popular name among advertisers. This is expected to drive top-line growth.
Meta Platforms shares are trading at a premium as suggested by a Value Score of C. In terms of the forward 12-month Price/Sales ratio, META is trading at 8.28X, higher than the Zacks Internet Software industry’s 2.75X.
Price/Sales Ratio (F12M)
Image Source: Zacks Investment Research
We believe Meta Platforms’ robust service offerings make the stock too attractive to ignore.
Currently, Meta Platforms carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.