Meta Platforms, Inc. (META), Facebook's parent company, exceeded expectations in the fiscal second quarter with robust results driven by a resurgence in online advertising following a pandemic-induced dip. The company achieved its initial double-digit revenue upswing since 2021, marking a significant milestone.
Furthermore, META anticipates revenue between $32 billion and $34.5 billion for the ongoing quarter, surpassing analysts' projected $31.22 billion.
META's commitment to enhancing user experience continues with its recent launch of Code Llama, a sophisticated large language model designed to generate and deliberate on code through text prompts.
Code Llama's exceptional performance among publicly accessible coding LLMs holds promise for boosting programmer efficiency, knowledge, and ultimately elevating software quality and user satisfaction for the company.
Additionally, the company could benefit from Meta Quest 3's debut, a state-of-the-art virtual and mixed-reality headset. Boasting heightened resolution, enhanced performance, revolutionary Meta Reality technology, and superior comfort, this innovation could bolster sales and profitability, further solidifying the company's success.
Debra Aho Williamson, an analyst with Insider Intelligence, said, “There’s a lot to feel good about when it comes to Meta right now. It has been able to maintain decent growth in monthly and daily active users across both Facebook and its family of apps, and it has seen strong performance from Advantage, its AI-driven suite of ad automation tools.”
Shares of META have surged 138.9% year-to-date to close its last trading session at $297.99.
Here is what could shape META’s performance in the near term:
Robust Financials
For the second quarter that ended June 30, 2023, META’s revenue increased 11% year-over-year to $32 billion. Its income from operations rose 12.4% from the year-ago value to $9.39 billion.
Moreover, the company’s net income grew 16.5% from the prior year’s quarter to $7.79 billion, while EPS attributable to Class A and Class B common shareholders increased 21.1% year-over-year to $2.98.
Solid Historical Growth
Over the past three years, META’s revenue grew at a 17.1% CAGR. The company’s EBITDA and normalized net income rose at CAGRs of 9.6% and 7.4%, respectively. Furthermore, the company’s EPS and total assets increased at CAGRs of 1.5% and 14%, respectively, during the same period.
Favorable Analyst Estimates
Analysts expect META’s revenue to increase 13.5% year-over-year to $132.37 billion for the fiscal year ending December 2023. The company’s EPS for the ongoing year is expected to rise 55.3% from the previous year to $13.34. Moreover, the company surpassed its consensus revenue estimates in all four trailing quarters.
Furthermore, META’s revenue and EPS for the next fiscal year (ending December 2024) are expected to grow 12.4% and 22.7% year-over-year to $148.72 billion and $16.36, respectively.
High Profitability
META’s trailing-12-month gross profit margin of 79.45% is 60.9% higher than the 49.4% industry average. Its trailing-12-month EBITDA margin of 37.27% is 102.8% higher than the industry average of 18.38%. In addition, the stock’s trailing-12-month net income margin of 18.71% compares to the industry average of 3.60%.
In addition, META’s trailing-12-month leveraged FCF margin of 16.80% is 109.8% higher than the industry average of 8.01%. Also, its trailing-12-month ROCE, ROTC, and ROTA of 17.36%, 14.04%, and 10.91% compare to the respective industry averages of 3.29%, 3.49%, and 1.55%.
POWR Ratings Show Promise
META’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates 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. Also, the stock has a B for Growth, consistent with the solid historical growth record.
META is ranked #7 in the 59-stock Internet industry. Click here to access META’s Value, Momentum, Sentiment, and Stability ratings.
Bottom Line
META's better-than-expected second-quarter performance and groundbreaking product releases appear to lay the foundation for substantial future growth. With robust financials, profitability, a favorable analyst outlook, and a solid growth trajectory, META could be a solid buy this month.
How Does Meta Platforms, Inc. (META) Stack Up Against Its Peers?
While META has an overall grade of B, equating to a Buy rating, you may also check out these other stocks within the Internet industry: Yelp Inc. (YELP), trivago N.V. (TRVG) and Travelzoo (TZOO), with an A (Strong Buy) and a B (Buy) rating. For exploring more A and B-rated Internet stocks, click here.
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META shares were trading at $294.68 per share on Wednesday morning, down $3.31 (-1.11%). Year-to-date, META has gained 144.87%, versus a 18.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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