Meta Platforms, Inc. (META) delivered impressive results in the fiscal second quarter, surpassing expectations. This positive financial result appears to be driven by enhancements to META’s advertising technology through the use of Artificial Intelligence (AI) and various product refinements.
Moreover, META’s remarkable quarterly performance signifies a notable comeback for the company, as it reports double-digit growth for the first time since the conclusion of 2021. This underscores the company’s resilience and strength in overcoming recent macroeconomic challenges.
Additionally, On August 24, META introduced Code Llama, a cutting-edge Large Language Model (LLM) capable of generating and discussing code in response to text prompts. Among publicly available LLMs, Code Llama sets a new standard for coding tasks. Its capabilities have the potential to enhance developer workflows, making them faster and more efficient.
Code Llama boasts improved coding capabilities, enabling it to generate code and articulate natural language related to code. It can respond to prompts in both code and natural language, making it a versatile tool for coding-related tasks.
Furthermore, the company could benefit from the launch of Meta Quest 3, a virtual and mixed-reality headset of the next generation, which is set to debut later this year. This advanced device boasts enhanced resolution, improved performance, groundbreaking Meta Reality technology, and a sleeker and more comfortable design.
Mark Zuckerberg, the founder and CEO of META, while expressing his satisfaction with the company’s recent quarterly performance and discussing its future prospects, said, “We had a good quarter. We continue to see strong engagement across our apps and we have the most exciting roadmap I’ve seen in a while with Llama 2, Threads, Reels, new AI products in the pipeline, and the launch of Quest 3 this fall,”
Zuckerberg’s statement reflects his optimism and confidence in META’s strategic direction and potential for continued success.
META’s shares have surged 155.6% year-to-date and 165.4% over the past nine months to close the last trading session at $307.56.
Here is what could shape META’s performance in the near term:
For the second quarter that ended June 30, 2023, META’s revenue increased 11% year-over-year to $31.99 billion. Its income from operations rose 12.4% from the year-ago value to $9.39 billion.
The company’s net income grew 16.5% from the prior-year quarter to $7.79 billion, while EPS attributable to Class A and Class B common shareholders increased 21.1% year-over-year to $2.98. Moreover, during the same period, its cash and cash equivalent amounted to $28.79 billion, up 96.1% compared to $14.68 billion as of December 31, 2022.
Solid Historical Growth
Over the past three years, META’s revenue grew at a 17.1% CAGR. The company’s EBITDA and normalized net income rose at CAGRs of 9.6% and 7.4%, respectively. Furthermore, the company’s levered FCF and total assets increased at CAGRs of 18.2% and 13.9% during the same period, respectively.
Favorable Analyst Estimates
The consensus revenue estimate of $33.40 billion for the fiscal third quarter (ending September 2023) represents a 20.5% increase year-over-year. The consensus EPS estimate of $3.55 for the ongoing quarter indicates a 116.5% 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 current fiscal year ending December 2023 are projected to grow 13.6% and 55.3% year-over-year to $132.46 billion and $13.34, respectively.
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 101.5% higher than the industry average of 18.49%. In addition, the stock’s trailing-12-month net income margin of 18.71% is 353.1% higher than the industry average of 4.13%.
Furthermore, META’s trailing-12-month levered FCF margin of 16.80% is 99.9% higher than the industry average of 8.40%. Also, its trailing-12-month ROCE, ROTC, and ROTA of 17.36%, 14.04%, and 10.91% compare to the respective industry averages of 4.37%, 3.49%, and 1.55%.
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. Also, the stock has a B grade for Growth and Sentiment, consistent with its solid historical growth record and favorable analyst estimates.
META demonstrates robust growth potential, driven by its exceptional second-quarter performance, strides in AI, and the launch of innovative products such as Code Llama and Meta Quest 3.
With its sound financial standing and a positive outlook from both analysts and the CEO, META presents a highly attractive investment opportunity and, therefore, could be an ideal buy this week.
How Does Meta Platforms, Inc. (META) Stack Up Against Its Peers?
While META has an overall grade of B, equating to a Buy rating, you may also check out these other stocks within the Internet industry: Yelp Inc. (YELP), Travelzoo (TZOO), and Despegar.com, Corp. (DESP), with an A (Strong Buy) and a B (Buy) rating. For exploring more A and B-rated Internet stocks, click here.
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META shares were trading at $302.77 per share on Tuesday afternoon, down $4.79 (-1.56%). Year-to-date, META has gained 151.60%, versus a 17.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run. More...
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