Meta Platforms Stock Dropped 10.6% In A Day, What’s Next?

Meta Platforms’ stock (NASDAQ: META) has gained 25% YTD, while the S&P500 is up only 6% over the same period. That said, the stock price plummeted 10.6% April 25th  vs a 0.5% decrease in the broader index. The drop came after the company posted lower-than-expected revenue guidance for the second quarter. Further, its plan to aggressively invest in artificial intelligence has made investors cautious. Overall, META is currently trading around $440 per share, which is 13% below its fair value of $509 – Trefis’ estimate for Meta Platforms’ valuation. 

Amid the current financial backdrop, META stock has seen extremely strong gains of 60% from levels of $275 in early January 2021 to around $440 now, vs. an increase of about 35% 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 194% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – 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 DIS, 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?

The company outperformed the consensus estimates in the first quarter of 2024, with revenues increasing 27% y-o-y to $36.5 billion. It was mainly driven by growth in advertising revenues. Further, family daily active people (DAP) improved by 7% y-o-y to 3.24 billion for March 2024, followed by a 20% y-o-y rise in ad impressions and a 6% gain in the average price per ad across its Family of Apps. On the cost side, the total expenses as a % of revenues decreased in the quarter, improving the operating margin from 25% to 38%. Overall, net income jumped 117% to $12.4 billion.

The top line grew 16% y-o-y to $134.9 billion in FY2023, mainly driven by a 16% growth in the family of apps segment. Notably, the family of apps contributes more than 95% of total revenues. Further, the key metrics – DAP and ad impressions improved in the year. However, the positive impact was somewhat offset by a 9% drop in the average price per ad. On the expense front, the operating margin improved due to a favorable drop in the expenses as a % of revenues. Altogether, the net income improved 69% y-o-y to $39.1 billion. 

Moving forward, we expect the Q2 results to be on similar lines. Overall, Meta Platforms’ revenues are forecast to remain around $159.6 billion in FY2024. Additionally, the adjusted net income margin is likely to see some increase in the year. This coupled with an annual GAAP EPS of $20.05 and a P/E multiple of just above 25x will lead to a valuation of $509.

[1] Returns as of 4/26/2024
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates