Why is Meta Platforms (META) up 5.5% since its last earnings report?

It’s been about a month since Meta Platforms (META) last reported earnings. Shares have risen about 5.5% in that time, outperforming the S&P 500.

Will the recent positive trend continue until its next earnings release, or will Meta Platforms face a recession? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the company’s most recent earnings report in order to better understand the important catalysts.

META Q1 results and revenues better

Meta reported first-quarter 2024 earnings of $4.71 per share, missing the Zacks Consensus Estimate by 9.03%. In the same quarter last year, the company reported earnings per share of $2.20.

Revenues of $36.46 billion surpassed the Zacks Consensus Estimate by 0.48% and grew 27.3% year-over-year.

Meta’s top line benefits from the growing integration of artificial intelligence into its products. Currently, 30% of Facebook posts come from the AI ​​recommendation system. AI-recommended content now accounts for over 50% of the content people see on Instagram. There are over 150 million monthly active threads.

However, META shares fell 15.15% in after-hours trading following comments from CEO Mark Zuckerberg about the company’s artificial intelligence and metaverse initiatives and related investments. Capital spending for 2024 is now expected to be between $35 billion and $40 billion, up from previous expectations of $30 billion to $37 billion.

Meta now expects to invest significantly more over the next few years in developing more advanced models and the largest AI services in the world. However, according to Meta’s CEO, monetization of these AI services will take a long time (“several years”).

Top-shelf details

Geographically, revenues from the United States and Canada, Asia-Pacific, Europe and Rest of the World (ROW) increased 21.3%, 25.5%, 33.7% and 41.8%, respectively, year-over-year.

Revenue from its app family (98.8% of total revenue), which includes Facebook, Instagram, Messenger, WhatsApp and other services, grew 27.2% year-over-year to $36.02 billion.

Family Daily Active People, or DAPs, defined as registered and logged in users who visited at least one of the Family products (Facebook, Instagram, Messenger and/or WhatsApp) on a given day, were 3.24 billion, an increase of 7.3 % year on year year.

Advertising revenue (99% of app family revenue) grew 26.8% year-over-year to $35.64 billion and accounted for 97.8% of first-quarter revenue. In cc, revenues increased by 26%.

Advertising revenues in the United States and Canada, Asia-Pacific, Europe and South Africa increased 21.6%, 24.5%, 32.8% and 40%, respectively, year-over-year.

During the reported quarter, ad impressions served across the app family increased 20% year-over-year, and the average ad price increased 6% year-over-year. View growth in Asia Pacific, RoW, US and Canada, and Europe increased by 28%, 17%, 16%, and 12%, respectively.

Online commerce accounted for the largest share of year-over-year growth, followed by gaming, entertainment and media.

Family of Apps other revenue increased 85.4% year-over-year to $380 million.

Reality Labs revenue (1.2% of total revenue) increased 29.8% year over year to $440 million.

The story continues

Operational details

In the first quarter, total costs and expenses increased 5.7% year-over-year to $22.64 billion. As a percentage of revenue, total costs and expenses were 62.1%, a significant decline from the 74.8% recorded in the prior-year quarter.

During the reported quarter, app family spend was $18.4 billion, representing 81% of Meta’s total spend. FoA expenses increased by 7% year-on-year, mainly due to higher legal and infrastructure costs.

Reality Labs expenses were $4.3 billion, down 1% year-over-year.

As a percentage of revenue, marketing and sales expenses decreased by 360 basis points (bps), while general and administrative expenses decreased by 60 basis points year-over-year.

R&D expenses as a percentage of revenues were 27.4%, down 540 basis points year-over-year.

At the end of the first quarter, Meta’s employee base was 69,329, down 10% year-over-year but up 3% sequentially.

Operating income of $13.82 billion increased 91.2% year-over-year. Operating margin was 37.9%, up significantly from 25.2% recorded in the prior-year quarter.

Family of Apps operating income increased 57.4% year over year to $17.7 billion. Reality Labs reported a loss of $3.85 billion, compared to a loss in the year-ago quarter of $3.99 billion.

Balance sheet and cash flow

As of March 31, 2024, cash and cash equivalents and marketable securities were USD 58.12 billion compared to USD 65.4 billion as of December 31, 2023.

Long-term debt was $18.39 billion as of March 31, 2024 and was unchanged sequentially.

Capital expenditures were $6.72 billion in the first quarter compared to $7.9 billion in the previous quarter. Free cash flow was $12.53 billion, compared to $11.51 billion reported in the prior-year quarter.

During the reported quarter, the company repurchased $14.64 billion of Class A common stock and paid $1.27 billion in dividends.

Conductivity

Meta expects total revenues in the second quarter of 2024 in the range of $36.5 billion to $39 billion, assuming an unfavorable impact of forex on revenue growth of 1% year-over-year.

For 2024, the company projects total spending of $96 billion to $99 billion. It still expects Reality Labs’ operating losses to increase year over year in 2024.

How have estimates changed since then?

Last month, investors saw a downward trend in new estimates.

VGM results

At this point, Meta Platforms boasts a great Growth Score of A, although it lags well behind its Momentum Score of D. Plotting a somewhat similar path, the stock is rated a C on the value side, meaning it’s in the middle 20% for this strategy investment.

Overall, the stock has a composite VGM score of B. If you’re not focused on one strategy, this score should interest you.

Perspectives

Estimates for this company are generally on a downward trend, and the magnitude of these revisions indicates a downward shift. Notably, Meta Platforms carries a Zacks Rank #3 (Hold). We expect a linear rate of return on the stock over the next few months.

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