Meta Platforms (META) recently posted its Q2 results, strengthening the optimistic view that the stock is a steal at its current levels. The social media giant not only continued to expand at an astonishing rate across all areas, but its overall outlook has never seemed more promising. Its massive investments in AI have started to pay off big time, while its profitability has shown explosive improvements on the back of expanding margins. Yet, Meta’s valuation seems depressed against its ongoing momentum. Accordingly, I am strongly bullish on Meta stock.
Record-Breaking KPIs Drive Accelerated Growth
It’s really impressive to see that Meta once again achieved record-setting KPIs (key performance indicators) in Q2, and on top of that, its revenue and earnings growth actually accelerated. Given how shaky the tech and advertising sectors have been, it’s pretty remarkable that the company is still ramping up its growth. It really shows how essential Meta’s platforms have become—not just for how people interact with the world but also for advertisers trying to reach the right audiences and grow their brands.
Particularly, Meta recorded exceptional growth in its user base and made significant advancements in AI-powered monetization, leading to a substantial increase in revenues. Additionally, thanks to rigorous cost control measures during 2023, also known as the “Year of Efficiency,” Meta was able to see an even more impressive margin expansion, driving its profits to new record levels.
Let’s take a closer look.
User Base Defies Expectations, Continues to Soar
Every quarter, without fail, I am consistently impressed by Meta’s ability to set new records for its user base. In Q1, this was once again the case, with Meta’s suite of apps boasting 3.27 billion daily active people (DAPs), up 7% from the previous year. The numbers are dazzling, with Meta excelling here across the board. WhatsApp is now being used by over 100 million monthly active users in the U.S., while Mark Zuckerberg noted that they are seeing solid year-over-year growth across Facebook, Instagram, and Threads as well, both domestically and internationally.
Mark Zuckerberg also set the record straight regarding Facebook’s user base, which many have poorly labeled as an “old people app,” with younger users having moved on entirely. Contrary to this perception, Mr. Zuckerberg clarified that the data, while not disclosed in detail, shows a different story, particularly among young adults in the U.S. He stressed that internal data contradicts the prevailing public narrative about who is actually using the app. Finally, another bright spot seems to be that Threads is about to hit 200 million monthly active users.
AI-Powered Monetization Drive Growth Reacceleration
The combination of a rapidly expanding user base and Meta’s heavy use of AI to improve its monetization capabilities has significantly accelerated the company’s growth. The substantial investment in Nvidia’s (NVDA) chips and data centers to boost processing power is clearly paying off.
By deploying cutting-edge AI-powered algorithms, Meta has refined ad targeting and personalization, allowing advertisers to reach their audiences more effectively and achieve higher returns on their ad spend. This improvement has led advertisers to bid more aggressively for Meta’s ads, which is reflected in a 10% increase in the average price per ad in Q2 compared to the previous year.
Meta’s new AI-driven features have enhanced ad delivery and campaign management, contributing to a 10% year-over-year increase in ad impressions across its Family of Apps despite the lesser 7% growth in Daily Active People (DAPs).
The synergy of increased user growth, higher ad impressions, and rising ad prices has driven Meta’s revenue up by an impressive 22%, reaching $39.1 billion. This marks a significant acceleration from last year’s Q2 growth of 11% and outpaces the five-year compound annual growth rate (CAGR) of 19%.
Further, last year’s cost cuts and improved unit economics from scaling led to Meta’s operating income margin jumping from 29% to 38%. The strong revenue growth combined with the underlying margin expansion led to net income soaring by 73% to $13.5 billion, marking the most profitable Q2 in Meta’s history by far.
Meta’s Valuation Is Depressed Relative to Its Momentum
Given Meta’s outstanding momentum, I believe that the stock’s current valuation seems quite depressed. At a forward P/E of just 22.5x, the stock appears extremely attractively priced relative to the 19.2% CAGR in EPS that is expected over the medium term. Many companies in the market have EPS growth estimates in the single digits while trading at similar multiples.
In the case of Meta, a company with an unparalleled moat that is at the forefront of harnessing the advantages of the AI race, the present multiple can hardly be justified. The situation becomes even more absurd when you consider that Meta tends to consistently beat Wall Street’s estimates and by a wide margin.
Is META Stock a Buy, According to Analysts?
Looking at Wall Street’s sentiment on the stock, Meta Platforms maintains a Strong Buy consensus rating based on 24 Buys, two holds, and two Sells assigned in the past three months. At $549.35, the average META stock forecast implies 15.5% upside potential.
If you’re unsure which analyst you should follow if you want to buy and sell META stock, the most accurate analyst covering the stock (on a one-year timeframe) is Ralph Schackart from William Blair, with an average return of 30.94% per rating and an 88% success rate. Click on the image below to learn more.
Final Thoughts
Meta Platforms continues to demonstrate exceptional growth and profitability, driven by a booming user base and significant advances in AI-powered ad monetization. The company achieved record revenues and earnings while its future prospects remain exceptionally strong. However, the stock’s valuation seems depressed against these prospects today. This contrast implies a strong buying opportunity, which is why I added to my position once again after earnings.