Meta Platforms (NASDAQ:META) is among the U.S. mega-cap tech socks that’s been on a tear, with a nearly 400% stock surge in two years. The social media and virtual reality tech giant continues to outperform due to its robust advertising business tied to its Facebook, Instagram, WhatsApp, and Threads franchises which serve 3.29 billion users daily.
While most investors are well aware of what Meta does, and that this social media and digital advertising giant has only seen its earnings compound over time, the question is where this stock could be headed from here. And after such a stark run-up in the company’s share price, a wider range of upcoming earnings expectations adds to the intrigue for Meta investors.
Here’s why I think Meta stock could be a buy ahead of the company’s upcoming earnings report (slated for February 5, after market close).
Key Points About This Article:
- Meta Platforms remains among the most important and visible mega-cap tech stocks in the U.S. market.
- With so many investor portfolios depending on the company’s success, its upcoming earnings reports will be even more important, given how far the stock has run over the past two years.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
Up Nearly 400% Since 2022
Some stocks have taken the stairs higher, but Meta is a company that appears to take the elevator both up and down.
The world’s largest social media company has seen its business model expand from just Facebook to include Instagram, WhatsApp, and Messenger. By March 31, 2024, the company’s apps served 3.24 billion daily users, providing about as wide of a global net as one can expect to deliver impressive advertising results for its clients and global marketing efforts at that.
However, following a post-pandemic spending binge on metaverse-related ambitions, waning margins and earnings hurt the company’s valuation. Many investors chose to pursue other higher-growth stocks, leaving Meta by the wayside.
This reality forced a strategic re-think from CEO Mark Zuckerberg, who dubbed 2023 the “year of efficiency.” And efficient Meta got, with the company seeing its operating earnings rise 62% in 2023, while the company continued to ramp up investments (just in AI instead of solely metaverse-related activity). Such spending continued into 2024, with the company seeing a big uptick in interest as the company leveraged AI to enhance its content and boost engagement on messaging apps. The company thinks its integrations are the future of the social media advertising world, and for now the market agrees.
AI the Key Driver for Meta
As mentioned, Meta’s bread and butter is its social media business. However, it’s the company’s recent focus on artificial intelligence and how it may be possible to leverage AI to improve returns that has investors so excited about this stock.
The company has continued to expand its AI efforts with Meta AI, a free platform rivaling ChatGPT, offering features like search and image generation tied to Facebook or Instagram accounts. Meta also launched open-source language models like Llama, with monetization plans likely ahead. AI-driven tools improved user engagement, boosting time spent on Facebook by 8% and Instagram by 6%, while ad conversions rose 7%. With 500 million monthly Meta AI users, the company reported a 19% Q3 revenue increase to $40.6 billion, highlighting the positive impact AI technology could have on the company’s future financial growth.
Meta’s Q3 earnings per share rose 37% to $6.03, with daily active users (DAUs) reaching 3.29 billion. While AI doesn’t directly drive DAU growth, it boosts engagement on Facebook and Instagram, increasing revenue. Long-term, many investors expect AI and initiatives like WhatsApp monetization, e-commerce, and the metaverse present significant growth opportunities beyond advertising, leveraging Meta’s massive ecosystem.
What to Expect on February 5
Experts anticipate that Meta Platforms’ quarterly report on February 6, 2025,will showcase a continuation of the company’s robust financial performance. I tend to agree. As mentioned, the company’s key re-focusing on efficiency (and spending its capital much more decisively on projects that may have a more immediate ROI) have led to its recent surge. So long as the underlying story remains the same, I think this is a stock that can certainly be worth holding here.
Currently, projections are for Meta to earn $25.37 per share (up from $22.61 per share this year), reflecting an EPS growth rate of 12.2%. What’s interesting is that revenue is expected to grow 14.6%, meaning that the market is implying some sort of margin degradation as the company spends a larger percentage of its cash on its AI endeavors.
We’ll have to see if Meta can do more with less. If Zuckerberg is still focused on efficiency as a key pillar of the company’s future success, then I see no reason why he won’t push for an even greater improvement in the company’s margins and better advertising metrics. In other words, I think the devil will be in the details when it comes to Meta’s upcoming report.
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