What’s Happening With META Stock?

Meta stock (NASDAQ: META) has seen a 3% fall in a week, while it’s up around 60% this year. The company recently reported its Q3 results, which were better than the street estimates. Its top line stood at $40.6 billion and the bottom line at $6.03, compared to the consensus estimates of $40.2 billion and $5.25, respectively. Despite a beat, the stock didn’t see any gains, as investors were concerned about higher costs. Let’s dive deeper into the company’s quarterly performance and its impact on META stock. 

How Did Meta Fare In Q3?

Meta Platforms’ revenues of $40.6 billion in Q3 reflected a 19% y-o-y rise, driven by a 7% rise in ad impressions and an 11% growth in average price per ad. Meta also reported a 5% rise in family daily active people (DAP) to 3.29 billion. Most of the company’s revenue came from ad sales on Facebook, Instagram, Threads, and WhatsApp. The company is benefiting from its AI push, targeting more advertising. The company plans to use AI to generate more content.

Not only did the company post higher revenues, its operating margin expanded to 43%, up around 300 bps y-o-y. Higher revenues and margin expansion resulted in earnings of $6.03 per share, up 37% y-o-y. Looking forward, Meta expects its Q4 revenue to be in the range of $45 billion to $48 billion.

What didn’t sit well with the investors was the company’s hike in capital spending guidance to $38 billion to $40 billion and higher investments in 2025 as well. This compares with $27 billion Meta spent in capital expenditures in 2023. Much of the new investments are related to the company’s AI push involving data centers and related infrastructure.

What Does This Mean For META Stock?

META stock, with 60% gains this year, has outperformed some of the other large tech stocks, including GOOG, up 21%, AMZN, up 28%, and MSFT, up 9%. However, we think META stock is appropriately priced now. We estimate Meta Platforms’ valuation to be $560 per share, aligning with its current levels. At $560, META stock is already trading at 25x expected earnings of $22.65 in 2024, compared to the stock’s average P/E ratio of 17x over the last three years. A rise in valuation multiple for META makes sense given the solid advertising growth lately. However, continued aggressive investments into AI also poses a slight risk if it would eventually provide a meaningful boost to the company’s earnings growth. For now, the story for most of the tech stocks is about valuation multiples. Most of them are trading at levels higher than seen over recent years.

Although META stock has seen a 2x rise since 2021, the increase has been far from consistent, with annual returns being considerably more volatile than the S&P 500. Returns for the stock were 23% in 2021, -64% in 2022, and 194% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it 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.

While META stock looks appropriately priced, it is helpful to see how Meta’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 11/4/2024
[2] Cumulative total returns since the end of 2016

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