news

Metadrop tells the wrong story about revenue. We are increasing our price target

Vaseline October 31, 2024

Don’t let the after-hours stock action fool you: Meta Platforms delivered a tremendously strong third quarter and a current quarter revenue guide that exceeded expectations. Sales in the three months ended September 30 rose nearly 19% year over year to $40.59 billion, ahead of the expected $40.29 billion, according to analyst estimates compiled by LSEG. Earnings per share rose more than 37% to $6.03 in the third quarter, beating the LSEG consensus EPS estimate of $4.25. META YTD Mountain Metaplatforms YTD shares of Meta fell 3% on the release and commentary, with investors selling to fewer than expected daily active users in the quarter and rising higher in full-year capital expenditure guidance. Bottom line: The closely watched Family Daily Active People (DAP) metric in the third quarter fell a bit short, but still rose almost 5% year over year to 3.29 billion. The Street was looking for 3.31 billion. No biggie, that’s still over 40% of the world’s population. The Family of Apps segment includes Facebook, Instagram, Threads, Messenger and WhatsApp. Oh, and in addition to that user base growth, average revenue per person (ARPP) across the entire family of apps rose more than 12% year over year to $12.29, a level that was slightly above expectations. Management increased the bottom end of the full-year investment guide by $1 billion. However, they also cut the top end of their total spending guidance for the year by $1 billion. Money going into artificial intelligence infrastructure will increase in 2025 – but given that Meta is already seeing a return on those investments to date, we think this is the right move and remain confident that management will continue without jeopardizing the efficiency gains of recent years. Okay, now that the “bad” is out of the way, let’s look at what investors should really focus on when considering what to do with Meta stock. That’s why we’re raising our price target from $560 to $650 per share. That implies an increase of more than 9.5% from Wednesday’s close, which was just a few dollars below the all-time high of $595.94 on October 4. However, we maintain our rating of 2 on the stock, looking for near-term gains. -takers to give us a better chance to upgrade the name. Meta Platforms Why we own it: We like Meta Platforms for its targeted ad dominance. Deep user engagement also creates a flywheel effect between users and content producers/marketplace sellers. The company’s scale provides the financial strength and employee talent needed to ensure new growth opportunities such as artificial intelligence, the metaverse, and virtual and augmented reality projects. We like management’s intense focus on cost control. Competitors: Alphabet, TikTok (owned by Chinese ByteDance) and Snap Weight in portfolio: 4.53% Most recent purchase: September 6, 2022 Started: May 29, 2014 Comments Now let’s take a closer look at the positive figures of the third quarter, including revenue above expectations and costs below expectations, a significant increase in operating margin versus an expected contraction, as well as above-consensus operating profit at Family of Apps and a smaller-than-expected loss at Reality Labs. Although things were moving in the right direction, Reality Labs lost $4.4 billion in the third quarter. The unit, which houses Meta’s virtual and augmented reality headsets and its Metaverse efforts, has recorded an operating loss of more than $58 billion since its founding in 2020. Quest headsets lead the segment, while connected Ray-Ban glasses have also been a big hit. . CEO Mark Zuckerberg wowed developers at the Meta Connect 2024 event in late September with a demonstration of a prototype AR glasses called Orion. There were video testimonials for tech giants, including Nvidia CEO Jensen Huang, who gave the device high marks. Operating cash flow was nearly $2.5 billion above what the Street was looking for, and capital expenditures were more than $1.8 billion lower than expected. That resulted in free cash flow of $3.5 billion, more than expected. It should be noted that there was a timing advantage here, so some capital expenditures were moved to the fourth quarter, boosting free cash flow. Nevertheless, operating cash flow was nothing short of impressive. Together with the strong third quarter results, management’s revenue guidance for the current (fourth) quarter was above expectations at the midpoint. In terms of shareholder returns, the company repurchased $8.86 billion worth of stock and paid out another $1.26 billion in dividends. During the post-earnings call, Zuckerberg talked about WhatsApp’s strong growth, noting that the US is one of the platform’s fastest growing countries and that it just passed the 2 billion calls per day milestone. As for Threads, Meta’s answer to X, formerly Twitter, the platform sees over 1 million new signups per day with nearly 275 million monthly active users. Zuckerberg also said: “We are also making great progress with our AI efforts and we see AI having a positive impact on almost all aspects of our work, from our core business and revenue generation to our long-term business. roadmaps for new services and computing platforms.” Meta AI, the corporate version of a generative artificial intelligence search/response engine of the ChatGPT type, now has more than 500 million active users per month. About Meta’s work on the large language model Llama, which at underpins Meta AI, Zuckerberg said: “The more widely Llama is adopted and becomes the industry standard, the more the improvements in quality and efficiency will flow back to all our products. “, adding that the team is “working with companies to make it easier to use, and now we’re also working with the public sector to adopt Llama across the US government.” He also added that the Llama 4 model “is now well into its development.” On social media platforms, Zuckerberg said: “Improvements to our AI-powered feed and video recommendations have led to an 8% increase in time spent on Facebook and a 6% increase on Instagram. This year alone, more than a million advertisers used our Gen AI tools to create more than 15 million ads last month, and we estimate that businesses using image generation will see a 7% increase in conversions and we’re from I believe there are many more benefits here.” Looking at global advertising data, the number of ad impressions, which measures how often an ad appears in an app, has increased 7% year over year, while the average price per ad has increased year over year Up 11% Guidance Taking a closer look at guidance, Meta expects fourth-quarter 2024 revenue to be between $45 billion and $48 billion, up from $46.31 at the midpoint. billion that the Street was looking for, according to LSEG. That said, management has also raised expectations for full-year capital expenditures and now expects them to fall between $38 billion and $40 billion. That increase was on the low side, compared to the previous range of $37 billion to $40 billion. The $39 billion midpoint is slightly higher than the $38.25 billion the Street expected. Looking ahead to 2025, the team noted in the press release: “We continue to expect significant capital expenditure growth in 2025. Given this, together with the back-end weighted nature of our 2024 capital expenditures, we expect significant acceleration in growth of infrastructure costs. next year, as we recognize higher growth in depreciation and operating expenses from our extensive infrastructure fleet.” This commentary could be responsible for the stock’s hit – apart from the profit taking, given the share price gain of almost 70% this year. That said , The Street was already projecting a roughly 24% increase in capex by 2025 before publication. So it’s not a big surprise and we think the sellers have been misled and that long-term investors will be rewarded for their patience. Zuckerberg said during the call: “It’s that time of year at Meta where we plan our budget for the following year, and that’s still a work in progress, but I wanted to share a few things that stood out to me as we’ve been going through this process so far go through. First, it is clear that there are many new opportunities to use new AI developments to accelerate our core businesses, which should have strong ROI in the coming years. So I think we need to invest more there. And second, our AI investments continue to require serious infrastructure, and I expect to continue to invest significantly there. We haven’t finalized a budget yet, but these are some of the guiding trends I see. Please note: this bodes well for club name Nvidia as we think about publishing its quarterly figures later in the season. Despite the higher capex forecasts, the team lowered the top end of expectations for full-year total spending, now targeting a range of $96 billion to $98 billion, down from $96 billion to $99 billion previously. That’s slightly below the consensus estimate of $97.22 billion at the midpoint. (Jim Cramer’s Charitable Trust is long META, NVDA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charity’s portfolio. If Jim has talked about a stock on CNBC TV, he will wait 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, ALONG WITH OUR DISCLAIMER. No fiduciary obligation or duty exists nor is it created by your receipt of any information provided in connection with the Investment Club. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

At the Meta Connect developer conference, Mark Zuckerberg, head of the Facebook group Meta, shows the prototype of computer glasses that can display digital objects in transparent lenses.

Andrej Sokolow | Photo Alliance | Getty Images

Don’t be fooled by the after-hours stock action, Metaplatforms delivered an excellent third quarter and a revenue forecast for the current quarter that exceeded expectations.

first Drop

first Drop

Metadrop tells the wrong story about revenue. We are increasing our price target

Vaseline

Patrick Mahomes finds JuJu Smith-Schuster for TD against Falcons

Rangers at Canucks: Postgame Notes

How Bitcoin Collateral Benefits Borrowers, Lenders, and Investors Alike

Bitcoin bulls surge towards $62,000 as Fed minutes fuel market frenzy

Metadrop tells the wrong story about revenue. We are increasing our price target

Vaseline

You Might Also Like

Patrick Mahomes finds JuJu Smith-Schuster for TD against Falcons

Rangers at Canucks: Postgame Notes

How Bitcoin Collateral Benefits Borrowers, Lenders, and Investors Alike

Bitcoin bulls surge towards $62,000 as Fed minutes fuel market frenzy

Latest Trending News