Considered one of the most popular Magnificent Seven stocks, Meta Platforms (NASDAQ:META), cooled off on Thursday after the corporate reported a mixed bag for its first-quarter earnings.
To sum it up, the outcomes were solid, but investors found the near-term outlook a bit disappointing. Because of this, Meta shares plunged about 16% on Thursday morning, falling to about $416.
Higher expenses expected
Meta Platforms, which owns Facebook and Instagram, amongst other properties, has been on fire over the past yr or so. The corporate’s stock price jumped 194% in 2023, and over the past yr, it’s up 136%. 12 months so far, Meta had returned about 42% prior to Thursday’s sell-off.
The primary-quarter numbers illustrate Meta’s strong growth, as its revenue climbed 27% yr over yr to $36.5 billion, while its net income jumped 117% to $12.4 billion, or $4.71 per share. Costs and expenses were kept relatively in check, rising just 6% yr over yr. The outcomes topped analysts’ estimates of $36.1 billion in revenue and earnings per share (EPS) of $4.30.
Founder and CEO Mark Zuckerberg called those results “a superb begin to the yr” in the corporate’s earnings report. Each day energetic people across Meta’s platforms rose 7% to three.24 billion, while ad impressions surged 20%, with a 6% increase in average price per ad.
Nevertheless, the negative response to Meta had more to do with its outlook. The social media giant is looking for second-quarter revenue within the range of $36.5 billion to 39 billion; on the midpoint, that outlook is barely below the $38.3 billion consensus estimate. Nevertheless, it might still represent a revenue gain of 14% to 22% over the second quarter of 2023.
The more concerning aspect of Meta’s outlook can have been its projection for expenses. The corporate raised its full-year estimate to between $96 billion and $99 billion, up from the previous range of $94 billion to $99 billion as a consequence of higher infrastructure and legal costs.
Meta Chief Financial Officer Susan Li also said the corporate expects operating losses from its Reality Labs business to “increase meaningfully yr over yr as a consequence of our ongoing product development efforts and our investments to further scale our ecosystem.”
As well as, Meta expects its capital expenditures to be higher than previously predicted, with the range upped to between $35 billion and $40 billion from the previous range of $30 billion to $37 billion because the firm accelerates its investments in artificial intelligence (AI).
While the corporate didn’t provide guidance beyond 2024, Li said their capital expenditures will proceed to extend in 2025 as the corporate “invests aggressively to support our ambitious AI research and product development efforts.”
Buy the dip in Meta stock?
Last quarter, Zuckerberg said 2023 was Meta’s “yr of efficiency” because it streamlined operations to give attention to recent areas of growth like AI. Thus, this executive commentary mustn’t come as an enormous surprise, although the guidance raise perhaps was not anticipated. Still, I feel Meta has taken the best steps to get here, and accelerating investments in product development and AI make sense.
The social media giant would even be the first beneficiary if Congress’ potential ban on TikTok actually becomes a reality. There are still numerous hoops to leap through for that to occur, but Meta is little question planning to raised position itself to fill that potential void. This is unquestionably something to regulate.
I don’t see Meta’s outlook as anything to be too concerned about in the long term. In reality, it is just not a foul thing because the stock had turn out to be a bit overheated, with its P/E ratio ticking as much as 33. I might not be shocked to see it bounce back in the times ahead with investors buying the dip. Meta is unquestionably a hold, and it still looks like a superb buy. Now with the valuation dropping, Meta stock looks even higher.
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