Riding the recent gain in mega-cap tech stocks, shares of Meta Platforms (META) earlier this week reached a $1 trillion market cap. After skyrocketing more than 170% over the past year, the Facebook, Instagram and WhatsApp parent company has already enjoyed year-to-date stock gains of more than 11%, besting the 2% rise in the S&P 500 index.
Investors are seemingly all in on the Meta. The social media giant is set to report fourth quarter fiscal 2023 earnings results after the closing bell Thursday. Given the stock’s strong outperformance relative to its peers, investors want to know how much better can things get. Its management has pushed all of the right buttons, including various cost optimization initiatives, many of which have enabled Meta to lower its 2023 expense guidance on two occasions this year.
These initiatives not only puts the company in a much stronger financial standing in the near term, it is poised to improve in the long term as cost efficiencies are further realized. Investors want to know how much better things can get. The stock is still cheap, according to Citigroup analyst Ronald Josey, who earlier this week reiterated his Buy rating on the stock and raised his target price to $440 from $425. Josey is not alone in his bullishness.
Citing the monetization potential of WhatsApp combined with artificial intelligence to automate customer service, analysts at Mizuho, while maintaining a Buy rating on Meta, believe Meta's revenue base could rise incrementally by a third over time. As such, the company on Wednesday must continue to show gradual improvements in these areas, while demonstrating its prominence among big tech for the quarter and full year.
For the three months that ended December, the Menlo Park, Calif.-based company is expected to earn $4.93 per share on revenue of $39.08 billion. This compares to the year-ago quarter when earnings were $1.76 per share on revenue of $32.16 billion. For the full year, earnings are projected to rise 67.6% year over year to $14.38 per share, while full-year revenue of $133.68 billion would rise 14.6% year over year.
The fact that full-year earnings are projected to rise almost 70% highlights the reasons why Wall Street analysts are so bullish on Meta stock. The strong earnings projections is the result of the aforementioned various cost cutting measures the company has undertaken to become leaner and more profitable. Meta has also flexed its growth muscle within its core digital advertising business given that it boasts an estimated 3 billion monthly active users on its family of products.
Meta has also flexed its growth muscle within its core digital advertising business given that it boasts an estimated 3 billion monthly active users on its family of products. These fundamental improvements are notable and important to bottom line in Q3 when it earned an adjusted $4.39 per share on $34.15 billion in revenue, beating EPS by a whopping 79 cents, while revenue grew 23% year over year, topping estimated by roughly $678 million.
During the quarter, costs and expenses declined 7%, while operating income surged 143% to $13.75 billion, thanks to a 40% year-over-year jump in operating margin. Meta’s wider "family of apps" (including Facebook, Instagram and WhatsApp) saw daily active people rise 7% year over year to 3.14 billion, while monthly active people rose 7% to 3.96 billion, both beating consensus. Just as impressive, Q3 ad impressions rose 31%, beating expectations for a 29.6% gain.
Given these key fundamental improvements, Meta stock will continue to outperform the market. That said, the company on Thursday must continue to show gradual improvements in these areas, while providing strong guidance for the quarter and full year.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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