Are Investors Buying Meta Platforms (META) in July?

Technology conglomerate Meta Platforms, Inc. (META) reported better-than-expected revenue and earnings for the first quarter of fiscal 2023. The company’s financial progress aligns with CEO Mark Zuckerberg’s declaration of 2023 as the “year of efficiency.”

The surprisingly positive earnings report boosted investor confidence in the company after restructuring hiccups, and its stock has gained more than 130% year-to-date in price. Given its robust financials, high profitability, and bright growth outlook, investors would be scooping up shares of META in July for potential gains.

With a $735.45 billion market cap, Meta, formerly known as Facebook, Inc., engages in the development of innovative products that allow people to connect and share with friends and family through mobile phones, personal computers (PCs), virtual reality (VR) headsets, and wearables globally. Its products and services include Facebook, Instagram, WhatsApp, Messenger, and Quest 2.

META is one of the world’s most valuable companies. It is considered one of the Big Five American information technology (IT) companies, alongside Amazon.com, Inc. (AMZN), Apple Inc. (AAPL), Alphabet Inc. (GOOGL), and Netflix (NFLX).

The tech giant reported that its sales grew by 3% year-over-year during the first quarter of 2023, reversing a trend of three consecutive quarters of revenue declines and surpassing analysts’ estimates of $27.65 billion, according to Refinitiv. Also, the company posted earnings of $2.20 per share, higher than the $2.03 per share expected by analysts, according to Refinitiv.

In addition, user growth was relatively strong compared to previous quarters. META’s family daily active people (DAP) were 3.02 billion on average, an increase of 5% year-over-year. Likewise, its family monthly active people (MAP) rose 5% from the year-ago value to 3.81 billion. Also, Facebook daily active users (DAUs) were 2.04 billion as of March 31, 2023, up 4% year-over-year.

“We had a good quarter and our community continues to grow,” said Mark Zuckerberg, CEO of META. “We’re also becoming more efficient so we can build better products faster and put ourselves in a stronger position to deliver our long term vision.”

Moreover, the company’s artificial intelligence (AI) work drives remarkable results across its apps and business. In February 2023, Zuckerberg announced a new product team at Meta focused on generative AI, a new set of machine learning techniques that enable computers to generate text, draw pictures, and create other media resembling human output.

“We’re exploring experiences with text (like chat in WhatsApp and Messenger), with images (like creative Instagram filters and ad formats), and with video and multi-modal experiences,” Zuckerberg said. “We have a lot of foundational work to do before getting to the really futuristic experiences, but I’m excited about all of the new things we’ll build along the way.”

The company issued a relatively bullish forecast for the second quarter of 2023, projecting total revenue of between $29.50 billion and $32 billion, whereas analysts expected sales of 29.50 billion, according to Refinitiv.

Shares of META have gained 138.5% over the past six months and 130.1% year-to-date to close the last trading session at $286.98. The stock has gained 78% over the past year.

Here are the factors that could affect META’s performance in the near term:

Solid Financials

For the first quarter that ended March 31, 2023, META’s revenue increased 2.6% year-over-year to $28.65 billion. The company’s advertising revenue rose 4.1% year-over-year to $28.10 billion, and its Family of Apps revenue grew 4% from the year-ago value to $28.31 billion. In addition, its cash, cash equivalents, and marketable securities were $37.44 billion as of March 31, 2023.

Impressive Historical Growth

Over the past three years, META’s revenue and EBITDA grew at CAGRs of 17% and 7.1%, respectively. Over the same time frame, the company’s normalized net income and EPS increased at 4.6% and 3.4% CAGRs, respectively. Also, its total assets grew at a CAGR of 10.1% over the same period.

Favorable Analyst Estimates

Analysts expect META’s revenue for the third quarter (ending September 2023) to come in at $30.92 billion, indicating an increase of 11.6% year-over-year. The consensus EPS estimate of $2.92 for the current quarter reflects a 77.8% year-over-year improvement. Moreover, the company has surpassed the consensus revenue estimates in three of the trailing four quarters.

Furthermore, analysts expect META’s revenue and EPS for the fiscal year 2023 (ending December 2023) to increase 8.4% and 33.7% from the previous year to $126.39 billion and $11.49, respectively. For the fiscal year 2024, the company’s revenue and EPS are expected to grow 10.8% and 23.8% year-over-year to $140.05 billion and $14.23, respectively.

High Profitability

META’s trailing-12-month gross profit margin and EBIT margin of 79.58% and 28.46% are 60.5% and 232.7% higher than the industry averages of 49.59% and 8.56%, respectively. Its trailing-12-month net income margin of 18.27% is 550.1% higher than the 2.81% industry average.

In addition, the stock’s ROCE, ROTC, and ROTA of 17.29%, 14.35%, and 11.62% are considerably higher than their respective industry averages of 3.29%, 3.83%, and 1.48%.

POWR Ratings Reflect Promising Prospects

META’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 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, consistent with its higher-than-industry profitability. The stock also has a B grade for Sentiment, in sync with optimistic analyst expectations.

META is ranked #11 out of 58 stocks in the Internet industry.

Beyond what I have stated above, we have also given META grades for Growth, Value, Momentum, and Stability. Get access to all the META Ratings here.

Bottom Line

Tech giant META reported an unexpected increase in revenue for the first quarter after three consecutive periods of decline. Furthermore, the company’s forecast for the second quarter of this year exceeded analysts’ expectations. META has also boosted its AI investments to support the company’s growth trajectory.

META’s stock is currently trading above its 50-day and 200-day moving averages of $254.14 and $173.53, respectively, indicating an uptrend. Considering its solid financial performance, attractive profitability, and promising growth prospects, META could be an ideal buy this month.

How Does Meta Platforms, Inc. (META) Stack Up Against Its Peers?

META has an overall POWR Rating of B. One could also check out these other stocks within the Internet industry with an A (Strong Buy) rating: Yelp Inc. (YELP), trivago N.V. (TRVG), and Travelzoo (TZOO).

What To Do Next?

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META shares fell $0.02 (-0.01%) in premarket trading Monday. Year-to-date, META has gained 138.47%, versus a 16.79% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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