Can Meta Platforms Beat Earnings Estimates Again?
Meta Platforms META is currently the best performing stock in the S&P 500 this year, up 77% YTD. Investors shouldn’t forget that META is also coming off a brutal 2022, where the stock was at one point down as much as -77% off its all-time high. Thus, over the last two years, META stock is down -30%.
Last earnings report, Meta blew analyst expectations away, beating earnings estimates by 41%. On Wednesday, April 26 Meta reports Q1 earnings, and the Zacks Earnings ESP projects that Meta will beat estimates by 11%.
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Earnings Estimates
Meta currently boasts a Zacks Rank #1 (Strong Buy), indicating upward trending earnings revisions. While current quarter estimates have been mostly flat, analysts are extremely bullish on the future of Meta. FY24 estimates have been upgraded by over 13% over just the last two months.
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Even though estimates are being revised higher, sales are earnings are not expected to grow YoY. Current quarter sales are projected to be $27.5 billion, which is a decline of -1.5% YoY and current quarter earnings are expected to decline -28% YoY to $1.96 per share.
Share Buybacks
Over the last few years, Meta has made a considerable effort to buy back shares. In 2022 alone, META bought back $28 billion in stock and since 2017, share count is down 12%. Additionally, Meta recently announced a new $40 billion share repurchase program.
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Restructuring
Meta was one of the first tech firms to start large-scale layoffs, initiating the “Tech-Job Apocalypse.” Many others followed such as Salesforce CRM, Amazon AMZN, Alphabet GOOGL and others. Painful as it was for those employees, it was necessary. Many tech firms dramatically over-hired following the post-Covid boom as they competed to hoover up all the available talent.
Then as the economic environment changed, and investors began to demand higher profit margins, reality kicked in. The restructurings have worked well for Meta, as well as CRM, whose stocks have rallied tremendously this year. Meta reduced its headcount by 25%, while CRM cut 10%.
Virtual Reality
While Meta stock has appreciated substantially, its once pipedream of a billion user VR-based metaverse has fallen to the wayside. Meta’s Horizon Worlds currently has ~300,000 monthly users, and the Quest 3 headset is set to be released in October.
Not everyone has abandoned the new technology though. Apple AAPL, who has been able to completely avoid layoffs, is preparing a new product. In June, Apple plans to release its new ‘mixed-reality’ headset, which is supposed to be slim fitting and able to combine virtual objects with real world visuals.
Bottom Line
Meta has had an incredible comeback this year, and deservedly so. Management made the hard decision to cut the headcount dramatically and boost profitability. As a product with more than 2 billion daily active users, investors got ahead of themselves when selling Meta all the way down to 10x earnings back in October 2022.
Normally, when a stock has a huge run-up in a short time like Meta, I might write off earnings as a sell the news event. But estimates thus far are very tepid, with little growth projected for the quarter. Since business output has slowed less than many expected, I am going to guess that Meta is able to beat its earnings expectations and continue to march higher.
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