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Shares of Meta Platforms (META) have recovered sharply this year to a 1-1/2 year high in late July after plummeting to a nearly 8-year low last November. After posting a record high in July 2021, Meta Platforms plunged into 2022 after CEO Zuckerberg focused on his vision of the unpopular and unprofitable metaverse virtual reality, which helped the company miss revenue estimates and saw a steep decline in its user base. However, a return of focus to its core businesses has increased advertising revenue and subscriber growth and helped the stock rally by more than +140% this year.
Meta Platform invested heavily in its Reels format, short-form videos similar to those on rival TikTok, to draw more attention to its Facebook and Instagram social networks. The pivot to Reels has succeeded in increasing consumer usage of its platforms and helped boost advertising revenues. In a conference call in July, the company projected revenue could grow as much as 20% in the current quarter. At the same time, Meta has cut thousands of jobs and reduced costs in what CEO Zuckerberg calls its “year of efficiency.”
Instagram, a photo and video sharing service owned by Meta Platforms available in 32 languages, recently introduced a competitor to X, formerly known as Twitter, called Threads. Evercore ISI estimates that Threads could generate about $8 billion in annual revenue over the next two years and reach nearly 200 million daily active users. For now, Threads is ad-free, and CEO Zuckerberg said he won’t add advertising to the service until it’s on a path to 1 billion users. Also, Zuckerberg said a web version of Threads will be available on desktop, allowing posting, viewing the feed, and interacting with others’ posts.
Most of the year-to-date gains in Meta Platform’s stock have come as investor confidence in the company’s earnings prospects improved. According to Bloomberg, the stock has the highest number of buy ratings among analysts in at least two years. Wells Fargo Securities recently upgraded Meta Platforms to overweight from equal weight, saying, “We were wrong on Meta. We now see the company as an accelerating growth story with emerging upside AI options in messaging, ad tools, and new consumer supplication.”
According to Bloomberg data, Meta Platforms is the second-biggest spender among mega-cap technology companies, trailing only Amazon.com. Meta has forecast spending of as much as $30 billion this year and more in 2024 and specifically highlighted its investments in support of artificial intelligence (AI) initiatives. However, the company’s Reality Labs division, in charge of its metaverse vision, is expected to have “meaningfully” greater losses this year than it did last year. Accuvest Global Advisors expects Meta’s AI plans to underpin strong revenue growth and said, “We are fine with spending, so long as it’s not on silly things like metaverse.”
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
