Technology stocks have recently experienced a downturn, but there are exceptions. Let’s delve into the prospects of Meta Platforms.
Earlier this year, the technology sector witnessed a surge in profitability, propelling it to new heights. However, the third-quarter earnings results haven’t been strong enough to provide a significant boost to tech stocks and those in related industries. A prime example is Alphabet (ticker: GOOGL), which, despite reporting better-than-expected earnings on Oct. 24, has seen a 6% drop since then, despite starting the year with a 50% gain. Additionally, the Technology Select Sector SPDR exchange-traded fund (XLK) has fallen approximately 8% from its record high in late July.
Fortunately, Meta (META) has managed to weather the storm relatively well. Since their earnings report, the stock has only experienced a minor 0.1% decline and has already recovered over half of its initial post-release losses. Comparatively, Meta is down just 5% from its 52-week high, putting it ahead of most other major players except Microsoft (MSFT). Furthermore, the stock has held firm at $275 as a level of support and is showing signs of an upward trajectory.
According to Rich Ross, head of technical analysis at Evercore, Meta stands out as the top performer both absolutely and relatively when compared to its peers. Ross highly recommends buying shares in Meta as an excellent investment opportunity.
In conclusion, while the broader technology sector faces challenges, Meta Platforms shines as a resilient standout. With promising indicators and supportive market dynamics, Meta presents an enticing option for investors seeking potential growth.
Meta’s Strong Business Performance and Growth
Meta, previously known as Facebook, continues to thrive and expand its business. In the third quarter, the company experienced a remarkable 25% increase in sales, reaching $34.1 billion. This impressive growth surpassed initial predictions of $33.6 billion, primarily driven by higher-than-expected average revenue per user.
The company’s success can be attributed to its focus on increasing user engagement on its platforms, particularly on Instagram reels. By providing captivating content and leveraging artificial intelligence, Meta has effectively monetized its user base. Additionally, Meta has successfully capitalized on this opportunity by incorporating more targeted advertisements, ensuring a better match between users and ads. As a result, Meta has been able to gain market share from other advertising companies and subsequently boost its sales.
Moreover, Meta’s prudent cost management strategies have led to improved profit margins, propelling earnings to $4.39 per share. This figure more than doubles the previous year’s earnings and significantly exceeds estimates of $3.64 per share. However, it is worth noting that Meta has cautioned about slower ad spending in the upcoming quarters due to brands bracing themselves for decreased consumer demand resulting from elevated interest rates.
Despite this cautionary remark, the outlook for Meta’s earnings remains promising. Wall Street analysts are confident in the company’s prospects, as consensus estimates for 2024 profits have increased by about 0.4% since the earnings release. Overall, considering Meta’s recent accomplishments in exploring new opportunities, Morgan Stanley analyst Brian Nowak asserts that “these trends give us more confidence in multi-year revenue growth.”
Analysts are predicting midteens annualized earnings growth for the next two years, which is expected to have a positive impact on the stock. Despite being reasonably priced, with shares trading at just under 18 times earnings-per-share estimates for the next 12 months, in line with the S&P 500’s multiple, the company’s growth rate is expected to outpace that of the index.
This favorable outlook is likely to encourage market participants to continue purchasing the stock for the foreseeable future.