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Meta Platforms Hits 52-Week High: What's Next for META Investors?
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Meta Platforms (META - Free Report) shares hit a 52-week high of $542.81 on Jul 8 and finally closed at $529.32, up 49.5% year to date. Its shares have outperformed the Zacks Internet Software industry’s gain of 19% and the Zacks Computer & Technology sector’s return of 29.2% over the same time frame.
META is riding on strong advertising revenue growth prospects. In the first quarter of 2024, advertising revenues increased 26.8% year over year to $35.64 billion and accounted for 97.8% of revenues. At constant currency, advertising revenues increased 26% year over year.
Meta Platforms’ offerings — WhatsApp, Instagram, Messenger, and Facebook — currently reach more than three billion people daily. Its staggering reach and increasing ad impressions (up 20% year over year in first-quarter 2024) make META one of the most important players in the digital ad sales market apart from Google and YouTube parent Alphabet (GOOGL - Free Report) .
Meta Platforms’ advertising revenues are expected to benefit from strong spending by advertisers as they leverage META’s growing AI prowess.
META YTD Performance
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for second-quarter 2024 advertising revenues is currently pegged at $37.39 billion, suggesting 33.1% year-over-year growth. The consensus mark for 2024 advertising revenues is currently pegged at $155.08 billion, indicating 17.5% growth over 2023.
META Integrates AI Tools in its Offerings
Meta Platforms has been leveraging AI and machine learning to boost the potency of its social-media offerings, including WhatsApp, Instagram, Facebook and Threads.
Currently, 30% of the posts on Facebook feed are delivered by its AI recommendation system. AI-recommended content now comprises more than 50% of the content people see on Instagram. Threads have more than 175 million monthly actives.
Image Source: Meta Platforms
META is now incorporating AI tools into WhatsApp to make businesses more customer-oriented. The rapid adoption of Generative AI (GenAI) is transforming conversational messaging platforms like WhatsApp to perform conversational commerce, including transactions like ride-hailing and grocery purchases.
The AI tools will enable businesses to help customers find new products. META is training AI to help businesses quickly answer the most popular questions they receive from customers on WhatsApp. AI integration will help businesses create ads on Facebook and Instagram.
Meta Platforms is leveraging AI to boost Facebook’s appeal among young adults, a demography that prefers Alphabet’s YouTube and Snap’s (SNAP - Free Report) Snapchat.
Powered by cutting-edge AI, META is offering user-centric features, positioning Facebook as a platform that resonates with young adults. It has upgraded Reels and Feed ranking technologies, resulting in better content recommendations. A newly developed model architecture allows for efficient learning from large datasets, significantly improving the performance of Facebook Reels.
Higher Spending to Keep Margins Under Pressure
Meta Platforms now expects to invest significantly more over the next few years in developing more advanced models and the largest AI services in the world. However, monetization of these AI services will take considerable time, which is a concern.
Full-year 2024 total expenses are now expected between $96 and $99 billion, up from its prior outlook of $94-$99 billion due to higher infrastructure and legal costs.
Capital expenditures are projected to be in the range of $35-$40 billion, up from the prior range of $30-$37 billion for 2024. Meta Platforms expects that capex will continue to increase in 2025, driven by ambitious AI research and product development efforts.
The Zacks Consensus Estimate for 2024 revenues is currently pegged at $158.97 billion, indicating 17.84% growth over 2023. The consensus mark for 2024 earnings is pegged at $20.15 per share, down by a cent over the past 30 days, suggesting 35.51% year-over-year growth.
Earnings Estimate Revision
Image Source: Zacks Investment Research
Conclusion
Meta Platforms’ AI focus bodes well for its long-term prospects. However, higher investments in AI infrastructure development are expected to keep margins under pressure in the near term.
Growing regulatory concerns don’t bode well for META’s prospects. It is suffering from privacy regulations in Europe and the United States and is also expected to face antitrust issues in its usage of AI.
Moreover, META is trading at a premium, with a forward 12-month P/S of 7.91X compared with the Zacks Internet Software industry’s 2.76X and higher than the median of 6.21X, reflecting a stretched valuation.
Image: Bigstock
Meta Platforms Hits 52-Week High: What's Next for META Investors?
Meta Platforms (META - Free Report) shares hit a 52-week high of $542.81 on Jul 8 and finally closed at $529.32, up 49.5% year to date. Its shares have outperformed the Zacks Internet Software industry’s gain of 19% and the Zacks Computer & Technology sector’s return of 29.2% over the same time frame.
META is riding on strong advertising revenue growth prospects. In the first quarter of 2024, advertising revenues increased 26.8% year over year to $35.64 billion and accounted for 97.8% of revenues. At constant currency, advertising revenues increased 26% year over year.
Meta Platforms’ offerings — WhatsApp, Instagram, Messenger, and Facebook — currently reach more than three billion people daily. Its staggering reach and increasing ad impressions (up 20% year over year in first-quarter 2024) make META one of the most important players in the digital ad sales market apart from Google and YouTube parent Alphabet (GOOGL - Free Report) .
Meta Platforms’ advertising revenues are expected to benefit from strong spending by advertisers as they leverage META’s growing AI prowess.
META YTD Performance
The Zacks Consensus Estimate for second-quarter 2024 advertising revenues is currently pegged at $37.39 billion, suggesting 33.1% year-over-year growth. The consensus mark for 2024 advertising revenues is currently pegged at $155.08 billion, indicating 17.5% growth over 2023.
META Integrates AI Tools in its Offerings
Meta Platforms has been leveraging AI and machine learning to boost the potency of its social-media offerings, including WhatsApp, Instagram, Facebook and Threads.
Currently, 30% of the posts on Facebook feed are delivered by its AI recommendation system. AI-recommended content now comprises more than 50% of the content people see on Instagram. Threads have more than 175 million monthly actives.
META is now incorporating AI tools into WhatsApp to make businesses more customer-oriented. The rapid adoption of Generative AI (GenAI) is transforming conversational messaging platforms like WhatsApp to perform conversational commerce, including transactions like ride-hailing and grocery purchases.
The AI tools will enable businesses to help customers find new products. META is training AI to help businesses quickly answer the most popular questions they receive from customers on WhatsApp. AI integration will help businesses create ads on Facebook and Instagram.
Meta Platforms is leveraging AI to boost Facebook’s appeal among young adults, a demography that prefers Alphabet’s YouTube and Snap’s (SNAP - Free Report) Snapchat.
Powered by cutting-edge AI, META is offering user-centric features, positioning Facebook as a platform that resonates with young adults. It has upgraded Reels and Feed ranking technologies, resulting in better content recommendations. A newly developed model architecture allows for efficient learning from large datasets, significantly improving the performance of Facebook Reels.
Higher Spending to Keep Margins Under Pressure
Meta Platforms now expects to invest significantly more over the next few years in developing more advanced models and the largest AI services in the world. However, monetization of these AI services will take considerable time, which is a concern.
Full-year 2024 total expenses are now expected between $96 and $99 billion, up from its prior outlook of $94-$99 billion due to higher infrastructure and legal costs.
Capital expenditures are projected to be in the range of $35-$40 billion, up from the prior range of $30-$37 billion for 2024. Meta Platforms expects that capex will continue to increase in 2025, driven by ambitious AI research and product development efforts.
The Zacks Consensus Estimate for 2024 revenues is currently pegged at $158.97 billion, indicating 17.84% growth over 2023. The consensus mark for 2024 earnings is pegged at $20.15 per share, down by a cent over the past 30 days, suggesting 35.51% year-over-year growth.
Earnings Estimate Revision
Conclusion
Meta Platforms’ AI focus bodes well for its long-term prospects. However, higher investments in AI infrastructure development are expected to keep margins under pressure in the near term.
Growing regulatory concerns don’t bode well for META’s prospects. It is suffering from privacy regulations in Europe and the United States and is also expected to face antitrust issues in its usage of AI.
Moreover, META is trading at a premium, with a forward 12-month P/S of 7.91X compared with the Zacks Internet Software industry’s 2.76X and higher than the median of 6.21X, reflecting a stretched valuation.
Hence, investors should wait for a better entry point for Meta Platforms, which currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.