Meta Platforms Inc. (NASDAQ: META) has once again captured investor attention, surging over 8% in pre-market trading following its impressive Q2 FY 2024 earnings report.
The tech giant reported earnings per share (EPS) of $5.16, beating analysts’ expectations by $0.40, and revenue of $39.07 billion, surpassing projections by $760 million.
This 22.1% year-over-year revenue growth showcases Meta’s continued dominance in the digital space.
Analysts raise price target
Investors and analysts are buzzing with excitement as Meta’s stock continues to rise. Following the earnings release, Rosenblatt analyst Barton Crockett reiterated his Overweight rating on the stock, raising his price target from $545 to $575.
Similarly, Piper Sandler analyst Thomas Champion increased his price target from $572 to $643 while maintaining a Buy rating. This optimistic outlook from analysts reflects confidence in Meta’s strategic direction and growth prospects.
Q2 earnings details & growth drivers
Meta’s robust earnings performance is underpinned by several key factors.
The company’s Family of Apps, including Facebook, Instagram, and WhatsApp, saw daily active users reach 3.27 billion in June 2024, marking a 7% increase from the previous year.
Ad impressions delivered across these platforms rose by 10%, and the average price per ad also increased by 10%.
The advertising segment remains the cornerstone of Meta’s revenue, accounting for 98% of its total income in Q2 FY 2024.
The company reported $38.3 billion in advertising revenue, up 22% year-over-year.
Despite these successes, Meta’s commitment to innovation, particularly in artificial intelligence (AI), remains a focal point. CEO Mark Zuckerberg emphasized the company’s investment in AI, with Meta AI poised to become the most used AI assistant globally by the end of the year.
Meta has also released the first frontier-level open-source AI model and is advancing with its AI-powered Ray-Ban Meta glasses.
Financially, Meta reported operating income of $14.85 billion, a 58% increase, and a net income of $13.5 billion, up 73% from the previous year.
The company’s operating margin improved to 38%, indicating efficient management and cost control.
However, Meta’s capital expenditures are projected to rise, with a forecasted $37 billion to $40 billion by year-end and significant growth anticipated in 2025.
This increase is driven by the need to build infrastructure capacity to support advanced AI models, such as the upcoming Llama 4.
The Reality Labs division, while still incurring losses, represents Meta’s long-term vision in augmented reality and AI. Reality Labs reported a $4.49 billion loss on $353 million in revenue for the quarter.
Challenges and future outlook for Meta
Meta’s growth is not without challenges, particularly regarding its heavy reliance on advertising revenue. While the company is exploring new avenues like AI and AR, the current dependence on ads poses a risk if market dynamics shift.
However, Meta’s strategic diversification efforts, including the expansion of Threads and business messaging, offer potential revenue streams to mitigate this risk over time.
In terms of future outlook, Meta expects third-quarter 2024 revenue to be between $38.5 billion and $41 billion, slightly above analyst expectations. While foreign currency fluctuations pose a headwind to revenue growth, Meta’s strategic investments and focus on AI position it well for sustained growth.
The company’s balance sheet remains strong, with approximately $40 billion in net cash, providing ample resources for continued innovation and shareholder returns.
Valuation & shareholder return
Meta’s valuation remains attractive despite its recent stock surge. The company’s price-to-earnings ratio stands at 23x, which is reasonable for a tech giant with double-digit growth prospects.
Meta’s disciplined approach to capital allocation, including a $50 billion stock buyback program, underscores its commitment to returning value to shareholders. The company repurchased $6.32 billion worth of shares in Q2, reinforcing investor confidence in its future growth.
With its strong fundamentals and strategic focus on innovation, Meta Platforms continues to be a compelling investment opportunity.
As we transition to technical analysis, the company’s robust financial performance and promising growth prospects provide a solid backdrop for examining its stock price trajectory. Now, let’s see what the charts have to say about the stock’s future direction.
Medium-term resistance at $532 must be crossed
Meta’s stock had a phenomenal run between the start of 2023 until Q1 2024, when it appreciated close to 500%. However, since April this year, the stock has been finding it tough to trade above $532, which is acting as a medium-term resistance.
Today’s surge will definitely give hope to the bulls, but investors who haven’t bought the stock yet must not jump in immediately as the stock is displaying range-bound movement in the medium term.
They can initiate a small position today near $510 but should add more to it only if the stock closes above $532 on the daily charts.
Traders who have a bearish bearish outlook on the stock must avoid it shorting it currently. They must initiate a short position only near $532 with a strict stop loss at $546 or they can wait for the stock to show weakness and drop below $500 again to take fresh positions.
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