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Is Meta Platforms (META) a Buy Before Its Next Earnings Release?

Tech behemoth Meta Platforms, Inc. (META) is set to announce its fiscal 2024 second-quarter results after the market closes on Wednesday, July 31, 2024. The company expects total revenue to be in the range of $36.50 – 39 billion for the to-be-reported quarter. The midpoint of the range, $37.75 billion, represents a nearly 18% year-over-year rise.

Meanwhile, Wall Street expects META to report an EPS of $4.67 for the quarter (ended June 2024), indicating a 56.6% year-over-year improvement. Its revenue for the same period is expected to increase 19.4% year-over-year to $38.20 billion. In addition, META surpassed the consensus revenue and EPS estimates in each of the trailing four quarters, which is quite remarkable.

META’s first-quarter revenue was $36.46 billion, compared to the $36.22 billion estimated by analysts. The company’s ad impressions delivered across its Family of Apps grew by 20% year-over-year, and the average price per ad increased by 6%. Furthermore, the company reported an EPS of $4.71, higher than analysts’ expectations of $4.36.

The tech giant no longer provides data on daily active users (DAUs) and monthly active users (MAUs). Instead, it reports a consolidated figure called family daily active people (DAP). DAP was 3.24 billion on average for March 2024, up 7% year-over-year.

Meta’s founder and CEO, Mark Zuckerberg, said, “It’s been a good start to the year. The new version of Meta AI with Llama 3 is another step towards building the world’s leading AI. We’re seeing healthy growth across our apps and we continue making steady progress building the metaverse as well.”

Shares of META have gained 10.6% over the past month and 53.4% over the past six months to close the last trading session at $539.91. Also, shares have surged 83.4% over the past year.

Let’s look at factors that could influence META’s performance in the upcoming months.

Positive Recent Developments

In May, Meta Platforms introduced generative AI-based advertising features, including image and text generation. The new features enable advertisers to quickly create copy and images for their campaigns inspired by an original image, generate expanded versions of the images, and overlay text on them in various fonts.

On April 18, META announced the latest version of Meta AI with Llama 3, one of the world’s leading AI assistants, which can be used for free. Meta AI is available across its apps, including Facebook, Instagram, WhatsApp, and Messenger, to get things done, learn, create, and access real-time information.

Also, Meta AI in English is available in more than a dozen countries outside the U.S., such as Australia, Canada, Ghana, Jamaica, Malawi, New Zealand, Nigeria, Pakistan, Singapore, South Africa, Uganda, Zambia, and Zimbabwe. These new advances in Meta AI with Llama 3 are expected to extend META’s market reach and boost its revenue streams.

Solid Financials

For the first quarter that ended March 31, 2024, META’s total revenue increased 27.3% year-over-year to $36.46 billion. Its income from operations rose 91.2% from the year-ago value to $13.82 billion. Its net income grew 116.7% from the previous year’s quarter to $12.37 billion.

Additionally, the company’s EPS rose 114% year-over-year to $4.71. Also, its adjusted free cash flow was $12.53 billion, up 81.3% from the prior year’s period. As of March 31, 2024, cash, cash equivalents, and marketable securities were $58.12 billion.

Impressive Historical Growth

Over the past five years, META’s revenue has grown at a CAGR of 19.3%. Its EBITDA has improved at a 17.6% CAGR over the same period. The company’s net income and EPS have grown at CAGRs of 18.5% and 20.8% over the same timeframe, respectively.

Furthermore, the company’s total assets have increased at a CAGR of 15.3% over the same period, and its levered free cash flow has grown at a CAGR of 22.6%.

Optimistic Analyst Expectations

For the fiscal year ending December 2024, Street expects META’s revenue and EPS to grow 17.8% and 34.7% from the prior year to $158.89 billion and $20.03, respectively. In addition, the company’s revenue and EPS for the fiscal year 2025 are expected to increase 12.8% and 14.1% year-over-year to $179.24 billion and $22.85, respectively.

High Profitability

META’s trailing-12-month gross profit margin of 81.50% is 62.4% higher than the 50.20% industry average. Also, the stock’s trailing-12-month EBITDA margin of 47.96% is 157.1% higher than the industry average of 18.65%. Also, its trailing-12-month net income margin of 32.06% is significantly higher than the industry average of 2.88%.

Moreover, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 33.36%, 20.73%, and 20.53% are considerably higher than the industry averages of 3.49%, 3.57% and 1.18%, respectively. Its trailing-12-month levered FCF margin of 24.6% is 192% higher than the industry average of 8.43%.

POWR Ratings Reflect Promise

META’s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which translates 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. It also has an A grade for Sentiment, consistent with favorable analyst estimates.

Within the B-rated Internet industry, META is ranked #9 out of 53 stocks.

Beyond what I have stated above, we have also given META grades for Value, Growth, Stability, and Momentum. Get all META ratings here.

Bottom Line

META reported outstanding first-quarter 2024 results that exceeded analysts’ expectations. Moreover, analysts appear optimistic about the company’s growth prospects due to its robust advertising business with an expanding user base across its apps, steady progress in building the metaverse, significant advancements in AI, and strategic partnerships and acquisitions.

With the anticipation building for its upcoming second-quarter earnings release, META could be an ideal buy for substantial gains.

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

While META has an overall grade of B, you may also check out these other stocks within the Internet industry with A (Strong Buy) and B (Buy) ratings: Yelp Inc. (YELP), Travelzoo (TZOO), and Dingdong (Cayman) Ltd (DDL).

To explore more A and B-rated internet stocks, click here.

What To Do Next?

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META shares rose $2.89 (+0.54%) in premarket trading Monday. Year-to-date, META has gained 53.51%, versus a 17.52% rise in the benchmark S&P 500 index during the same period.

This post was originally published on StockNews.com - Top Stories