Shares of social-media giant Meta Platforms (NASDAQ: META) are up over 10% in pre-market trading today after the company announced Q1 results on April 26.
In the quarter that ended in March, Meta reported:
- Earnings of $2.20 per share, compared to estimates of $2.03 per share
- Revenue of $28.65 billion, compared to estimates of $27.65 billion
- Daily active users or DAUs of 2.04 billion vs. estimates of 2.01 billion
- Monthly active users of 2.99 billion, which were in line with estimates
- Average revenue per user of $9.62 vs. estimates of $9.30.
Meta’s sales were up 3% year over year in Q1, after three consecutive quarters of revenue decline. It now forecasts sales between $29.5 billion and $32 billion in Q2, which were also above estimates of $29.5 billion.
Let’s see what impacted Meta’s performance in the quarter and if the stock can continue to surge higher in 2023.
Meta stock is up 74% in 2023
Due to an impressive rally in tech stocks, Meta stock has now surged close to 80% year-to-date. However, it's still trading 40% below all-time highs and is valued at a market cap of $536 billion.
In a company statement, Meta CEO, Mark Zuckerberg stated, “We had a good quarter and our community continues to grow. The company is becoming more efficient so we can build better products faster and put ourselves in a stronger position to deliver our long term vision.”
However, Meta’s net income was down 24% year over year at $5.71 billion, compared to the net income of $7.47 billion in the year-ago period.
Its Reality Labs division which is involved in the development of augmented reality and virtual reality products reported sales of $399 million, but its operating loss stood at $3.99 billion. In Q4, the losses for this division stood at $4.28 billion, on sales of $727 million. Moreover, sales and operating losses stood at $2.16 billion and $13.7 billion respectively in 2022.
Meta had earlier defined 2023 as the year of efficiency, resulting in company-wide layoffs and a lower cost base. It forecasts expenses to range between $86 billion and $90 billion in 2023, including restructuring costs of approximately $4 billion. Additionally, Meta will allocate between $30 billion and $33 billion towards capital expenditures, a majority of which will be allocated and deployed to expand capabilities in high-growth verticals such as artificial intelligence.
Meta has laid off 21,000 employees due to a slowdown in revenue growth and an erosion of profit margins driven by various factors. This includes inflation, interest rate hikes, lower enterprise spending, the iOS privacy update, and competition from TikTok.
What next for Meta stock price and investors?
Analysts tracking Meta stock expect it to increase sales by 4.8% to $122 billion in 2023 and by 11.3% to $136 billion in 2024. Comparatively, adjusted earnings are forecast to widen from $8.59 per share in 2022 to $9.96 per share in 2023 and $12.44 per share in 2024.
So, META stock is priced at 4.4 times forward sales and 21x forward earnings, which is quite reasonable for a tech stock.
There are several reasons for Meta stock to move lower in the upcoming months, especially if market sentiment turns bearish. But the company’s huge size, its vast user base, and investments in high-growth segments make it a top bet at the current valuation.
Wall Street remains bullish on Meta stock, with more than 60% of analysts covering the company recommending a “buy.”