Meta Platforms’ (NASDAQ:META) stock jumped 4% as the company reported better-than-expected Q2 results.
These results included earnings per share of $2.98 and revenue of $32 billion, beating analyst estimates by a significant margin.
Notably, Meta’s CEO Mark Zuckerberg expressed satisfaction with the quarter’s performance, citing strong engagement and an exciting roadmap with new products. The company also surpassed expectations with ad revenue of $31.5 billion.
Meta Platforms’ stock surged up to 7% in after-hours trading after strong Q2 results, beating revenue estimates by $970 million and EPS forecasts by $0.07.
Despite a significant year-to-date gain, investors ought to consider Meta’s previous challenges, recent recovery, and valuation before deciding to invest.
The Q2 Earnings Report
Meta Platforms reported an 11% revenue increase, marking the first double-digit growth since the end of 2021. It experienced revenue declines because of economic challenges and Apple’s privacy change.
The company provided a third-quarter revenue forecast of $32 billion to $34.5 billion, indicating at least 15% growth compared to the previous year.
In 2023, Meta’s stock surged 159%, signaling a rebound in the ad market and improved profitability after significant layoffs.
CEO Mark Zuckerberg expressed optimism about strong user engagement and exciting upcoming projects, like Llama 2, Threads, Reels, new AI products, and Quest 3’s fall launch.
Meta reported second-quarter total costs and expenses of $22.61 billion, a 10% increase from the previous year. CEO Mark Zuckerberg’s cost-saving plan, including 21,000 job cuts, seems to be effective.
As a result, the company revised its capital expenditures forecast for 2023 to $27 billion to $30 billion, down from the earlier estimate of $30 billion to $33 billion. It attributed the reduction to cost savings, particularly on non-AI servers, and shifts in capital expenditures into 2024 due to project delays and equipment deliveries.
META and AI
After recent cost-cutting measures, Meta is now focusing on AI investments. Determining the appropriate AI capital expenditure is a key consideration, as growth projections for new AI products remain uncertain.
Meta has previously invested billions in data center infrastructure with promising results.
Reels, Facebook, and Instagram’s response to TikTok has seen significant growth with AI-driven video ranking and recommendations. Reels’ monetization has surged to $10 billion per year from $3 billion a year ago.
Key developments include support for WhatsApp business messaging, click-to-message ads, and AI tools for improved ad campaign monetization. However, the timing of capex spending for generative AI remains uncertain.
Is It a Buy? The Verdict
Despite competition from other platforms, Meta’s steady growth indicates it will remain a leading advertising ecosystem. Threads, a Twitter-like platform, also garnered nearly 100 million users in its initial days. To counter Apple’s platform changes, Meta has implemented AI-driven ad recommendations, resulting in a 7% increase in platform engagement.
After strong Q2 earnings and an optimistic Q3 outlook, I’m holding my Meta position. While the stock is not as cheap as it was in late 2022, it remains worth considering for investors interested in AI and the metaverse as potential computing platforms.
The current P/E ratio of about 22 times the expected 2024 earnings is reasonable.
On the date of publication, Chris MacDonald has a LONG position in META. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.