Facebook parent Meta Platforms (META: $515, up $40 in pre-market trading) released its second-quarter results last night, reporting $39 billion in revenue, up 22% YoY, compared to $32 billion a year ago. Profits were $13.5 billion, or $5.16 per share, compared to $7.8 billion, or $2.98, with a beat on consensus estimates on the top and bottom lines, coupled with an upbeat guidance for the third quarter, driven by robust advertising tailwinds.
The social networking giant posted strong performances across the board, starting with daily active users at 3.3 billion, up 7% YoY, across its family of apps, which includes WhatsApp, Facebook, Instagram, and Threads. Total ad impressions and the average price per ad similarly saw an uptick of 10% each on a YoY basis, following two years of headwinds with businesses pulling back on advertising spending.
Starting in 2022, the company embarked on extensive cost-cutting initiatives, eliminating over 21,000 jobs through multiple rounds of layoffs. This has resulted in an expansion in its operating margins at 38%, up from 29% a year ago, leaving more room for its growing capex spending, which stood at $8.5 billion during the quarter and is set to scale past $40 billion for the entire year. This is earmarked for building infrastructure to support its growing AI push, such as with its recently launched Llama 3.1, which uses a vast 405 billion parameters. The company’s recent splurge involves 350,000 Nvidia H100 graphics cards, which it hopes to have deployed by the end of 2024, putting it on par with peers such as Alphabet and OpenAI.
Meta’s growing AI prowess extends beyond bolstering its ad targeting and content recommendations engine. The Llama 3.1 Assistant is open source, allowing developers to build a wide range of applications on it. The company expects its newly introduced AI-enabled assistant, which is already integrated with Facebook, Instagram, and WhatsApp, to become the most used AI assistant by the end of the year.
The stock is up 37% YTD, putting the company firmly in the trillion-dollar club while still offering a relatively reasonable valuation of just 8 times sales and 24 times earnings. Meta Platforms returned $6.3 billion during the quarter through stock repurchases, plus $1.3 billion in dividends, made possible by its massive cash reserves at $58 billion, just $38 billion in debt, and $76 billion in cash flow. Our Target is $550, and We Would Not Sell Meta Platforms. As we write this, we are tempted to raise the Target to $600 or even $700, but we don’t want to get ahead of the overall market. By that, we mean that if the market stays strong, these numbers will be met, perhaps as early as this year, but if the market weakens, it will take longer.