Why Meta Is the Stock to Watch This Earnings Season

What an earnings season it’s been for mega-cap tech stocks. Earnings beats, guidance raises, and expectations of future revenue and profit growth led many of the most closely-watched tech giants to see some meaningful price appreciation following the release of their results. 

However, for investors in Meta Platforms (NASDAQ:META | META Price Prediction), the feeling likely couldn’t have been further from that reality. Shares of META stock dropped around 9% on October 29, following the company’s Q3 earnings. That’s despite earnings and revenue which smashed expectations. 

Let’s dive into Meta’s recent earnings, what led to this decline, and why this stock market reaction to some rather incredible results could lead to a massive buying opportunity for investors who are willing to take the other side of this bet right now. 

What Happened?

Man scratching his head

With shares of META stock now trading around $635 per share at the time of writing (down from almost exactly $750 per share heading into this print), that’s a decline of more than 15% in the span of around one week. 

That’s a big drop in that amount of time, but even bigger for a company with a market capitalization that was pushing $2 trillion heading into the print. 

With Meta posting $7.25 in EPS compared to analyst estimates of $6.69, and revenue beating estimates by nearly $2 billion ($51.2 billion versus $49.4 billion expected), that’s a big beat. And on top of that, Meta provided a forward revenue guidance range that was higher than what the consensus on Wall Street suggested would be the case. 

That said, what Meta CEO Mark Zuckerberg also announced during this earnings call was that he plans to ramp up capital expenditures dramatically to around $72 billion this year, and suggested that spending in 2026 could be “notably larger.” 

Cue investors who harken back to the reinvention of the company and its renaming from Facebook to Meta Platforms. Remember the metaverse – that whole ordeal where the company formerly known as Facebook decided to go all-in and spend billions of dollars on an idea that never panned out?

I’m not saying AI is the same thing at all. It isn’t – it’s real, and it’s a technology that’s going to reshape our economy moving forward. I think the jury has come back with a verdict on that front. 

But I also think that the parallels between how capital spending in the past has played into a 77% crash from 2021 peak to 2022 trough for META stock is worrying for many investors right now. 

Is There Any Good News?

Man reading a financial statement with a smile

I’d say the positive narrative that can come out of this recent decline is that Meta is still a world-class cash cow, generating sky-high margins and incredible profitability from its core social media operations and its empire which has been successful in dominating mind share for users all around the world. And with the vast majority of the world on one of the company’s core platforms, the opportunities for continued monetization are ample, particularly for those bullish on global population growth and surging social media usage.

In a sense, one could view the whole metaverse debacle at Meta Platforms as an opportunity to buy. Though, when the stock was down more than 75% from its peak, it didn’t feel like that was the time to sell.

This decline is a lot smaller than the company’s 2022 drop, and it’s possible we have further to go here. But in my view, Meta remains a top world-class tech giant that’s worth dollar cost averaging into over time. I’ll stand by that, even if this spending is indeed going to be proven to be out of control in hindsight.