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After the recent actions that Meta Platforms (META) took to lower costs and increase its profitability, more analysts have jumped on the bull bandwagon for the stock. As a result, shares of Meta Platforms have surged +140% from a seven-year low in November to an 11-month high today as confidence in the company has improved since it started cutting thousands of jobs amid falling sales. The rally in the stock accelerated last month after it announced further job cuts and pledged to be more efficient.
More than 25 analysts have raised their price targets on Meta Platforms since the company announced its second round of layoffs last month. According to data compiled by Bloomberg, analysts have also boosted their 2023 earnings per share (EPS) estimate for Meta Platforms by 15% over the past three months. While the digital advertising business has slowed, it has at least stabilized, according to analysts. ETF Action said, “The catalyst for Meta Platform’s recent rally is likely traced to both extensive cost-cutting measures and adjusting to the negative effects of Apple’s privacy changes which significantly hurt ad revenue.”
With analyst EPS estimates rising along with the stock price, shares of Meta Platforms are still cheaper than its mega-cap technology peers and the Nasdaq 100 Stock Index ($IUXX) (QQQ). Meta Platforms is trading at 17 times forward earnings, below its 10-year average of 26 times. In contrast, Amazon.com (AMZN) trades at 36 times, Microsoft’s (MSFT) price-earnings ratio is 28 times, Apple (APPL) is at 26, and the Nasdaq 100 is at 24 times.
Another positive for Meta Platform’s earnings is that the changes Apple made to its privacy policy that make it harder to target iPhone users with ads have been in place long enough that they’re no longer affecting its year-over-year growth rate. Also, Morgan Stanley said Meta Platforms is the most durable mega-cap technology stock if consumer spending weakens since its cost cuts have been bolder than its peers.
Until the start of 2022, Meta Platforms averaged revenue growth of 42% over the previous ten years, according to Bloomberg data. After the company reported its first-ever sales decline last year, analysts project Meta Platform’s sales to increase +4.7% this year, with growth accelerating to 11% in 2024. Concerns about inflation and a potential recession have squeezed ad budgets at businesses, cutting the primary revenue stream for companies like Meta Platforms and Alphabet (GOOGL). However, Guggenheim said it is seeing more stability in overall advertising demand, which could keep revenue at Meta Platforms from declining.
