With a market cap of $2.11 trillion, tech giant Microsoft Corporation (MSFT) in Redmond, Wash, develops, licenses, and supports software, services, devices, and solutions worldwide. Its offerings range from Microsoft Teams, Office 365 Security, and Compliance to Xbox hardware and Xbox content and services in the gaming segment. In comparison Meta Platforms, Inc. (FB) develops products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and in-home devices worldwide. It operates in two segments, Family of Apps and Facebook Reality Labs. It has a market capitalization of $573.82 billion.
The concerns surrounding tighter Federal Reserve monetary policy, high inflation, recession worries, and the Russian-Ukraine war, have raised questions about the stock market’s stability. In addition, the Federal Reserve is expected to raise its fed funds target rate by a half a percentage point and could get even tougher with rate increases to fight inflation.
Amid this situation, we think it could be wise to invest in big tech stocks because of their impressive market dominance and solid long-term growth prospects. So, both MSFT and FB could generate steady returns in the long term. MSFT stock has gained 11.9% in price over the past year, while FB has negative returns.
But which of these two stocks is a better buy now? Let’s find out.
On March 4, 2022, MSFT acquired Nuance Communications Inc. (NUAN). Scott Guthrie, executive vice president, Cloud + AI Group, MSFT, said, “Completion of this significant and strategic acquisition brings together Nuance’s best-in-class conversational AI and ambient intelligence with Microsoft’s secure and trusted industry cloud offerings.”
On April 27, 2022, FB announced that it expected its second quarter 2022 total revenue to be in the range of $28 – 30 billion. This outlook reflects a continuation of the trends impacting its revenue growth in the first quarter, including softness in the back half of the first quarter that coincided with the war in Ukraine.
Recent Financial Results
MSFT’s revenue increased 18% year-over-year to $49.40 billion for its fiscal third quarter ended March 31, 2022. The company’s operating income grew 19% year-over-year to $20.40 billion, while its net income came in at $16.70 billion representing an 8% year-over-year increase. Also, its EPS was $2.22, up 9% year-over-year.
FB’s net sales increased 7% year-over-year to $27.91 billion for its fiscal first quarter, ended March 31, 2022. However, its operating income declined 25% year-over-year to $8.52 billion. Its net income decreased 21% year-over-year to $7.47 billion, and its EPS came in at $2.72, down 18% year-over-year.
Past and Expected Financial Performance
MSFT’s net income and EPS grew at CAGRs of 27.5% and 28.6%, respectively, over the past three years. Analysts expect MSFT’s revenue to increase 18.5% in the current year and 14.4% next year. The company’s EPS is expected to grow 15.8% in the current year and 15.7% next year. Furthermore, its EPS is expected to grow 16.2% per annum over the next five years.
In comparison, FB’s net income and EPS have grown at CAGRs of 24.1% and 25.2%, respectively, over the past three years. The company’s revenue is expected to increase 8.2% in the current year and 16.6% next year. Its EPS is expected to decline 12.7% in the current year but grow 17.7% next year. Also, FB’s EPS is expected to grow at 7.5% per annum over the next five years.
MSFT’s trailing-12-month revenue is 1.61 times what FB generates. MSFT is relatively more profitable, with EBITDA and net income margins of 49.33% and 37.63%, respectively, compared to FB’s 43.50% and 31.20%.Furthermore, MSFT’s ROE and ROTC of 48.72% and 22.43%, respectively, are higher than FB’s 29.07% and 19.34%.
In terms of forward non-GAAP P/E, MSFT is currently trading at 29.87x, which is 69.4% higher than FB’s 17.63x. Furthermore, MSFT’s 21.22x forward EV/EBITDA is 126% higher than FB’s 9.39x.
So, FB is the more affordable stock.
MSFT has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. In contrast, FB has an overall rating of C, which translates to Neutral. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.
MSFT has a B grade for Sentiment, which is consistent with analysts’ expectations that its EPS will increase in the current year. In comparison, FB has a C grade for Sentiment, in sync with analysts’ expectations that its EPS will decline in the current year.
MSFT also has a B grade for Stability, in sync with its 0.91 beta. In comparison, FB has a C grade for Stability, consistent with its beta of 1.39.
Both MSFT and FB are big tech stocks that enjoy immense investor attention, given their solid growth prospects and industry-leading positions. However, even though both MSFT and FB are expected to gain in the long run, it is better to bet on MSFT now because of its high profitability, better stability, and impressive growth prospects.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the other top-rated stocks in the Software – Business industry here. Also, click here to access all the top-rated stocks in the Internet industry.
Note that MSFT is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.
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MSFT shares were trading at $282.10 per share on Wednesday afternoon, up $0.32 (+0.11%). Year-to-date, MSFT has declined -15.95%, versus a -11.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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