Interactive Investor

ii view: Meta Platforms shares rocket 15% to 15-month high

27th April 2023 16:02

by Keith Bowman from interactive investor

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Shares in this social media mammoth fell by more than 60% in 2022 but have almost doubled this year. We assess prospects. 

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First-quarter results to 31 March

  • Total revenue up 3% to $28.6 billion
  • Net income down 24% to $5.7 billion
  • Earnings per share down 19% to $2.20
  • Cash and cash equivalents of $37.44 billion

Guidance:

  • Expects second-quarter revenue to be in the range of $29.5-32 billion

Chief Executive Mark Zuckerberg said:

"We had a good quarter and our community continues to grow. Our AI work is driving good results across our apps and business. We're also becoming more efficient so we can build better products faster and put ourselves in a stronger position to deliver our long term vision." 

ii round-up:

Facebook owner Meta Platforms Inc Class A (NASDAQ:META) detailed sales and earnings which beat Wall Street forecasts, helped by businesses in China buying its ads following the reopening of its economy post the pandemic, plus its own efficiency drive. 

Sales for the first quarter to the end of March rose 3% to $28.6 billion, surpassing analyst estimates for a fall to $27.6 billion. Adjusted earnings per share of $2.20 was ahead of forecasts of $2.02 per share. 

Shares in the owner of both Instagram and WhatsApp rose by 15% in reaction to these numbers. They fell heavily last year but have now rallied by almost 170% since the start of November to prices not seen since the start of February 2022. Online advertising giant and Google owner Alphabet Inc Class A (NASDAQ:GOOGL) has followed a similar pattern, with the tech-heavy Nasdaq index year-to-date up by around 13% as investors hope that interest rates may have peaked. 

Sales for the current second quarter are forecast by Meta to come in at between $29.5 billion and $32 billion, a potential further improvement from sales of $28.6 billion in the quarter just gone.

The Mark Zuckerberg headed company previously announced heavy job losses as it looked to improve efficiency and slash costs. Staff numbers at the end of March totalled 77,114, down 1% year-over-year. 

Full-year capital expenditure of $30-33 billion is expected to aid its ongoing build out of Artificial Intelligence (AI), supporting both its ads and wider operations. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results, flagging a long-term estimate of fair value of $300 per share. 

ii view:

Founded in 2004, Facebook monthly active users now total 2.99 billion, an increase of 2% year-over-year. In 2022, the US accounted for its biggest slice of sales at around two-fifths, followed by Asia Pacific and Europe at almost a quarter, and the rest of the world and Canada the balance. Sales for its Reality Labs VR Metaverse business generated less than 2% of annual sales. 

For investors, losses at the Reality Labs business which includes the firm's Metaverse business grew to almost $4 billion in this latest quarter, up from just under $3 billion a year ago. Uncertainty regarding the economic outlook remains high, costs generally for businesses have risen, while government and regulatory concerns regarding Facebook's influence over such events as elections and misinformation have not disappeared.

On the upside, revenues for this latest quarter grew for the first time in four quarters and users of its apps, although not growing sharply, are still rising. Initiatives to increase efficiency and cut costs are being aggressively pursued, while major investment into its offerings including both AI and the virtual world of the metaverse are being made.

On balance, and while some caution remains sensible when trading volatile tech stocks, especially given the recent outperformance, investors will appreciate these results which indicate action to revive the business has been successful. One for investors happy with volatility and risk in the current trading environment.

Positives

  • Cost saving initiatives
  • Cash and cash equivalents held of $37.44 billion

Negatives

  • A series of scandals have previous hit the company
  • Software changes by Apple can impact performance

The average rating of stock market analysts:

Buy

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