Buy Meta Platforms With a Long-Term Perspective After Q3 Earnings Beat

Meta Platforms Inc. (META Quick QuoteMETA - Free Report) , the undisputed leader of the global social media space, reported strong third-quarter 2024 earnings results. The company provided strong guidance buoyed by its extensive thrust on generative artificial intelligence (AI). 

The stock price of META has soared 58.5% year to date compared with Wall Street’s broad-market index — the S&P 500’s gain of 20.5%. Despite this, the stock currently has a double-digit upside for the short term. 

Moreover, in the long term, META has a higher earnings per share (EPS) growth rate than the S&P 500 index, which should drive its stock prices in the next 3 to 5 years. Meta Platforms currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The chart below shows the price performance of Meta Platforms year to date.

Image Source: Zacks Investment Research

A Brief Recap of META’s Q3 Earnings Results

META reported third-quarter 2024 earnings of $6.03 per share, beating the Zacks Consensus Estimate by 16.18%. Revenues of $40.59 billion surpassed the Zacks Consensus Estimate by 0.1%. 

In the third quarter of 2024, total costs and expenses increased 13.9% year over year to $23.24 billion. As a percentage of revenues, total costs and expenses were 57.3%, significantly down from 59.7% in the year-ago quarter.

Generative AI aids META’s advertising revenues (98.9% of Family of Apps revenues), which increased 18.6% year over year to $39.89 billion and accounted for 98.3% of third-quarter revenues. Meta Platforms’ saw higher retention rates among advertisers using generative AI-powered image expansion, and background and text generation tools.

Revenues from Family of Apps (99.3% of total revenues), which includes Facebook, Instagram, Messenger, WhatsApp and other services, increased 18.8% year over year to $40.32 billion.

Family Daily Active People or DAP, defined as a registered and logged-in user who visited at least one of the Family products (Facebook, Instagram, Messenger and/or WhatsApp) on a given day, was 3.29 billion, up 4.8% year over year.

Meta Platforms expects total revenues between $45 billion and $48 billion for the fourth quarter of 2024, assuming a neutral forex impact on year-over-year revenue growth. For 2024, the company still anticipates total expenses between $96 billion and $98 billion. 

META continues to expect Reality Labs’ operating losses to increase meaningfully year over year. It expects 2024 capital expenditure in the range of $38-$40 billion, higher than the previous guidance of $37-$40 million.

Meta platforms warned that it expects a “significant acceleration” in infrastructure spending next year as it continues to pour money into developing AI. CEO Mark Zuckerberg pledged to spend significantly on infrastructure and other projects like the metaverse and AI-powered glasses.

Future Catalysts for META Stock

Meta Platforms is set to receive initial shipments of NVIDIA Corp.’s (NVDA Quick QuoteNVDA - Free Report) new flagship AI chip later this year. NVIDIA’s next-generation AI chip, called Blackwell, is the upcoming driver. META is set to get B200 Blackwell chips.

META’s AI-driven platform is enhancing ad delivery efficiency and increasing return on ad spend for advertisers. Solid performance in spaces like e-commerce, gaming, entertainment, and media is benefiting Meta Platforms. 

Management said that the company will invest $3-$40 billion as capital expenditure in AI initiatives in 2024. Moreover, capital spending is likely to reach more than $50 billion in 2025. 

On July 24, META unveiled its Llama 3 AI model. Using NVIDIA’s latest HDX H200 chip that supports Meta Platforms’ Llama 3 AI model, an investment of $1 by an API provider can generate $7 in revenues over the next four years. This mostly free Llama 3 model and its advanced version to be released next year aim to compete with incumbents like Open AI. 

On Oct. 24, Meta Platforms entered into a multi-year deal with Thomson Reuters Corp. (TRI Quick QuoteTRI - Free Report) to allow its AI chatbot access to news content for responses to current events and news questions. This constitutes a significant AI partnership between a tech behemoth and a news publishing giant.

Solid Earnings Estimate Revisions for META Shares

For fourth-quarter 2024, the Zacks Consensus Estimate currently shows revenues of $46.98 billion, suggesting an improvement of 17.1% year over year and EPS of $6.70, indicating an appreciation of 25.7% year over year. 

Moreover, META has witnessed positive earnings estimate revisions for 2024 and 2025 in the last seven days. At present, the Zacks Consensus Estimate indicates a year-over-year increase of 20.8% and 50.9%, respectively, for revenues and EPS in 2024. The current Zacks Consensus Estimate for 2025 revenues and EPS reflects an upside of 14.6% and 11.4%, respectively.

Image Source: Zacks Investment Research

Strong Upside Left for META Shares

Meta Platforms is currently trading at an attractive valuation compared to its peers. The stock has a forward price/earnings (P/E) of 25.3X, below the industry’s P/E of 31.2X. META has a robust return on equity (ROE) of 35.6% compared with the industry’s ROE of a negative 1%.   

The average short-term price target of brokerage firms represents an increase of 11.7% from the last closing price of $560.68. The brokerage target price is currently in the range of $475-$811. This indicates a maximum upside of 44.6% and a maximum downside of 15.3%. 

META currently has a long-term (3-5 years) EPS growth rate of 20.1%, well above the S&P 500’s long-term EPS growth rate of 13.1%. Therefore, the risk/reward is strongly in favor of the stock from a long-term perspective.

Image Source: Zacks Investment Research