The earnings season is off to a flying start, with Meta Platforms (META: $572) being second in line among the Magnificent 7 with a phenomenal third-quarter performance last night. The company generated $41 billion in revenue, up 19% YoY, compared to $34 billion a year ago, with a profit of $15.7 billion, or $6.03 per share, surging 35% YoY, against $11.6 billion, or $4.39, topping estimates on the top and bottom lines along the way.
Unfortunately, the stock market is in a mode to knock down anything that is not 100% perfect. Meta was 99.9%. (Microsoft reported stellar earnings last night but is down almost 6% this morning.) The stock is down 3% today. This can mainly be attributed to user growth coming in below estimates, at 3.29 billion across its family of apps, up 5% YoY, but falling short of the expected 3.31 billion, alongside its rising capex on AI infrastructure, which is set to touch $40 billion this year.
This, of course, was nothing but an overreaction, especially considering its other core metrics, such as ad impressions growing 7% YoY and the average price per ad growing 11%. These figures are quite impressive, given that its user base already covers 40% of the world’s population, meaning that growth hereon is possible mainly by unlocking additional value across its landed base with the effective use of AI and Machine Learning. Meta is now focused on doing just that, with its ad targeting systems becoming increasingly precise and more refined, better than all other networks today, thanks to its advanced AI-enabled optimization systems. Apart from this, Llama AI and its flagship chatbot, Meta AI, which already has 500 million active users, are helping unlock value for advertisers while also better engaging and retaining its users.
Investors are concerned about rising expenses, mainly on AI infrastructure, especially when there is no clarity on how the company plans to monetize it. The company, however, is fully committed to this and would rather have the supply in place when the demand arrives than the other way around. It believes that all of its world-class products will rely heavily on its AI infrastructure going forward. We believe that what they are doing is the right thing. They have $58 billion in cash for just such an opportunity as AI. There is no better place to invest right now. This situation is not unlike its Reality Labs play, which a couple of quarters ago was a central sore point for investors. While the division continues to hemorrhage cash to this day, with $4.4 billion in operating losses during the quarter, its products, such as the Ray-Ban Meta smart glasses, have become a sleeper hit, becoming a top-selling product globally. However, the company hasn’t put out sales figures yet.
The stock has experienced a significant rally, gaining 70% so far this year. It has more than quintupled since its low point of $91 two years ago. With a $1.5 trillion market cap, it rewards investors generously with $8.9 billion in buybacks and $1.3 billion in dividends. It maintains a robust balance sheet with $58 billion in cash, $38 billion in debt, and $78 billion in cash flow. We believe in META, and any dip in the stock is an opportunity to add more. Our Target is $550, and our Sell Price is We Would Not Sell Meta. We are hereby raising our Target to an aggressive $700. You can’t own enough of this great company.