Meta Platforms, Inc.’s (META) first quarter brought a surprise with a 3% sales upswing from $27.91 billion a year earlier, breaking a streak of declining revenue. Revenue soared to $28.65 billion, surpassing analysts’ $27.65 billion projection. Moreover, earnings per share exceeded expectations, reaching $2.20 instead of the anticipated $2.03.

Additionally, the company has issued upbeat guidance. Facebook’s parent anticipates second-quarter revenue to range from $29.5 billion to $32 billion, surpassing analysts’ sales expectation of $29.5 billion.

The company also anticipates benefiting from its upcoming launches, including Meta Quest 3, a cutting-edge virtual and mixed reality headset featuring higher resolution, improved performance, breakthrough Meta Reality technology, and enhanced comfort. These innovations are expected to drive increased sales and profitability for the company.

Moreover, on July 18, META launched Llama 2, an open-source language model, with Microsoft (MSFT) as its preferred partner. Embracing open innovation, the move garnered widespread support from tech, academia, and policy advocates, positioning the company for significant advancements and a stronger stance in the AI market.

Shares of META have surged 117.1% over the past six months to close its last trading session at $302.52.

Here is what could shape META’s performance in the near term:

Robust Financials

For the first quarter that ended March 31, 2023, META’s advertising revenue increased 4.1% year-over-year to $28.10 billion. Its total revenue increased 2.6% from the year-ago value to $28.65 billion. As of March 31, 2023, the company’s cash and cash equivalents stood at $11.55 billion, while its current assets came in at $52.48 billion.

Solid Historical Growth

Over the past three years, META’s revenue grew at a 17% CAGR. The company’s EBITDA and normalized net income rose at CAGRs of 7.1% and 4.6%, respectively. Furthermore, the company’s EPS and total assets increased at CAGRs of 3.4% and 10.1%, respectively, during the same period.

Favorable Analyst Estimates

Analysts expect META’s revenue to increase 8.7% year-over-year to $126.79 billion for the fiscal year ending December 2023. The company’s EPS for the ongoing year is expected to rise 34.6% from the previous year to $11.56. Moreover, the company surpassed its consensus revenue estimates in three of four trailing quarters.

Furthermore, META’s revenue and EPS for the next fiscal year (ending December 2024) are expected to grow 11.03% and 23.8% year-over-year to $140.77 billion and $14.31, respectively.

High Profitability

META’s trailing-12-month gross profit margin of 75.58% is 59.9% higher than the 49.8% industry average. Its trailing-12-month EBITDA margin of 36.18% is 100.5% higher than the industry average of 18.05%. In addition, the stock’s trailing-12-month net income margin of 18.27% compares to the industry average of 2.81%.

In addition, META’s trailing-12-month leveraged FCF margin of 11.83% is 61% higher than the industry average of 7.35%. Also, its trailing-12-month ROCE, ROTC, and ROTA of 17.29%, 14.35%, and 11.62% compare to the respective industry averages of 3.29%, 3.76%, and 1.48%.

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 taking into account 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.

META is ranked #11 in the 58-stock Internet industry. Click here to access META’s Growth, Value, Momentum, and Stability ratings.

Bottom Line

META’s better-than-expected first-quarter performance, revolutionary product launches, and formidable alliances seem to be paving the way for significant expansion in the coming years. Considering the company’s strong financials, profitability, positive analyst sentiment, and impressive growth record, META could be a solid buy this week.

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

While META has an overall POWR Rating of B, equating to Buy, one could also check out other stocks within the Internet industry that are overall A (Strong Buy) rated: Yelp Inc. (YELP), trivago N.V. (TRVG), and Travelzoo (TZOO).

What To Do Next?

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META shares were trading at $293.64 per share on Friday afternoon, down $8.88 (-2.94%). Year-to-date, META has gained 144.01%, versus a 19.33% rise in the benchmark S&P 500 index during the same period.

About the Author: Aanchal Sugandh

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns. More...

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