After More Than 150% YTD Gain, Meta Platforms to Post Mixed Results In Q3

Meta Platforms (NASDAQ: META) is scheduled to report its fiscal Q3 2023 results on Wednesday, October 25, 2023. We expect the stock to post mixed results with earnings topping the consensus but revenues missing the mark. The company surpassed the street expectations in the last quarter, with revenues increasing by 11% y-o-y to $32 billion. Further, the daily active users (DAUs) and ad impressions delivered across the META Family of Apps rose by 5% and 34%, respectively. That said, the average price-per-ad was down by 16% y-o-y. We expect the Q3 results to be on similar lines. Our interactive dashboard analysis on Meta Platforms’ Earnings Preview has more details. 

Amid the current financial backdrop, META stock has witnessed gains of 15% from levels of $275 in early January 2021 to around $310 now, vs. a similar change for the S&P 500 over this roughly 3-year period. However, the increase in META stock has been far from consistent. Returns for the stock were 23% in 2021, -64% in 2022, and 156% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 10% in 2023 (YTD) – indicating that META underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the Communication Services sector including GOOG, NFLX, and CMCSA, and even for the megacap stars TSLA, MSFT, and AMZN. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could META face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

Our forecast indicates that Meta Platforms’ valuation is $310 per share, which is slightly above the current market price of around $309.

(1) Revenues expected to miss the consensus

Meta Platforms’ revenues grew 7% y-o-y to $60.6 billion in the first two quarters of FY 2023. It was due to continued growth in the user base (DAUs) and ad impressions, despite a decrease in per-ad-revenue. Notably, per-ad-revenue has suffered in 2023 due to a tough macroeconomic scenario. We expect the Q3 revenues to see growth on a year-on-year basis. Overall, Meta Platforms’ revenues are estimated to touch $127 billion in FY2023.

Trefis estimates Meta Platforms’ fiscal Q3 2023 net revenues to be around $32.98 billion, 2% below the $33.57 billion consensus estimate. 

(2) EPS to top the consensus estimates

Meta Platforms Q3 2023 adjusted earnings per share (EPS) is expected to be $3.67 per Trefis analysis, 1% above the consensus estimate of $3.63. The company’s net income was down 5% y-o-y to $13.5 billion in the first half of FY 2023. However, it was up 16% y-o-y in Q2, primarily due to higher revenues. We expect the same momentum to continue in the third quarter. Overall, we estimate an annual GAAP EPS of around $11.56 in FY2023.

(3) Stock price estimate is just above the current market price

We arrive at Meta Platforms’ valuation, using a GAAP EPS estimate of around $11.56 and a P/E multiple of just below 27x in fiscal 2023. This translates into a price of $310, which is slightly above the current market price. 

Note: P/E Multiples are based on Share Price at the end of the year and reported (or expected) Adjusted Earnings for the full year 

[1] Month-to-date and year-to-date as of 10/23/2023
[2] Cumulative total returns since the end of 2016