Meta Platforms’ stock (NASDAQ: META) has seen strong gains of 80% year-to-date, outperforming the S&P 500 index. The stock is currently trading at around $498 per share, slightly below Trefis’ fair value estimate of $527. However, the stock has had a volatile performance in recent years, with returns of 23% in 2021, -64% in 2022, and 194% in 2023. In comparison, the S&P 500 had returns of 27%, -19%, and 24% during the same period. Over the years, beating the S&P 500 has been challenging for individual stocks, including other heavyweights in the Communication Services sector and megacap stars like Tesla, Microsoft, and Amazon. However, the Trefis High Quality Portfolio, consisting of 30 stocks, has consistently outperformed the S&P 500, providing better returns with less risk.
In the second quarter of 2024, Meta Platforms reported better-than-expected results, with revenues increasing by 22% year-over-year to $39.1 billion. The growth was primarily driven by an increase in advertising revenues. Key metrics, such as family daily active people, ad impressions, and average price per ad, all showed growth in the quarter. On the cost side, total expenses as a percentage of revenues were down compared to the previous year, resulting in an operating margin of 38%. Net income jumped by 73% to $13.5 billion.
For the first half of FY2024, Meta Platforms’ revenue grew by 25% year-over-year to $75.5 billion, driven by higher advertising revenues. All key metrics showed growth over the same period, and the operating margin improved from around 28% to 39% due to lower expenses as a percentage of revenues. Net income increased by 91% year-over-year to $25.8 billion. Looking ahead to Q3, the company expects revenues to be between $38.5-41 billion, with full-year revenues estimated to be around $158.3 billion. The adjusted net income is expected to reach $52 billion for the year, leading to a valuation of $527 with a P/E multiple just above 26x.
The strong financial performance of Meta Platforms is attributed to the growth in advertising revenues and key metrics such as family daily active people and ad impressions. The company’s ability to improve its operating margin through lower expenses as a percentage of revenues has also contributed to its increased profitability. Despite facing a challenging macroeconomic environment with high oil prices and elevated interest rates, Meta Platforms is expected to continue its growth trajectory in the coming quarters.
Overall, Meta Platforms’ stock has shown significant volatility in recent years, with periods of underperformance followed by strong gains. However, the company’s solid financial performance and strong growth prospects in advertising revenues are expected to support its valuation in the future. Investors looking for exposure to the Communication Services sector may find Meta Platforms’ stock attractive, given its potential for continued growth and profitability.
