Meta Platforms Stock Is Up 40% YTD, Where Is It Headed?

Meta Platforms’ stock (NASDAQ: META) has gained roughly 41% YTD as compared to a 16% rise in the S&P 500 index over the same period. Notably, Meta Platforms’ peer Alphabet (NASDAQ: GOOG) is up 25% YTD. Overall, META is currently trading around $498 per share, which is 6% below its fair value of $527 – Trefis’ estimate for Meta Platforms’ valuation.

Amid the current financial backdrop, META stock has seen extremely strong gains of 80% from levels of $275 in early January 2021 to around $500 now, vs. an increase of about 45% for the S&P 500 over this roughly 3-year period. However, the increase in META stock has been far from consistent. Returns for the stock were 23% in 2021, -64% in 2022, and 194% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 – indicating that META underperformed the S&P in 2021 and 2022. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the Communication Services sector including GOOG, NFLX, and TMUS, and even for the megacap stars TSLA, MSFT, and AMZN. In contrast, the Trefis High Quality Portfolio, with a collection of 30 stocks, 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. Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could META face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

The company posted better-than-expected results in the second quarter of 2024, with revenues increasing 22% y-o-y to $39.1 billion. It was mainly driven by growth in advertising revenues (up 22% y-o-y). Further, its key metrics witnessed growth in the quarter – family daily active people grew 7% y-o-y to 3.27 billion for June 2024, ad impressions improved by 10%, and average price per ad rose by 10%. On the cost side, the total expenses as a % of revenues were down as compared to the year-ago figure, resulting in an operating margin of 38% vs 29%. Overall, net income jumped 73% to $13.5 billion.

The top line grew 25% y-o-y to $75.5 billion in the first half of FY2024, primarily due to higher advertising revenues. Further, all the key metrics posted growth over the same period. On the expense front, the operating margin improved from around 28% to 39% due to lower expenses as a % of revenues. Altogether, the net income increased 91% y-o-y to $25.8 billion.

Moving forward, we expect the same trend to continue in Q3. Notably, the company expects Q3 revenues to remain between $38.5-41 billion. Overall, Meta Platforms’ revenues are estimated to be around $158.3 billion in FY2024. Additionally, the adjusted net income is expected to touch $52 billion in the year. This coupled with an annual GAAP EPS of $20.12 and a P/E multiple of just above 26x will lead to a valuation of $527.

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