Meta Platforms (META) has recorded a remarkable 80% surge over the past year, and yet, its Q3 report suggests there’s room for further upside ahead. Specifically, Meta showcased robust growth across all key operating metrics, including user growth, ad impressions, and ad pricing. Moreover, the social media giant’s profits surged, a trend likely to persist, indicating that META stock remains attractive today. Hence, Meta Platforms remains my largest position, and I continue to hold a bullish outlook on the stock.
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Sustaining Exceptional Growth in Key Operating Metrics
What truly impressed me about Meta’s Q3 results wasn’t any single highlight but rather the fact that the company maintained exceptional growth across all key operating metrics. Daily Active People (DAP) in its app ecosystem reached a record 3.29 billion, representing a 5% year-over-year increase. Meta’s continued single-digit growth, with nearly half the planet using at least one of its apps daily, is just astounding.
This growth, alongside heightened engagement across platforms such as Instagram and Facebook, led to a 7% year-over-year increase in ad impressions. Now add the notable 11% increase in the average price per ad, and you get a 19% increase, bringing revenues of $40.6 billion, a new record for the social media giant.
AI-Driven Recommendations Boosted Time Spent on Apps
These metrics were driven by Meta’s focus on improving user experiences and its continued advances in AI. In the post-earnings call, Mark Zuckerberg highlighted that AI-driven recommendations boosted time spent on Facebook by 8% and on Instagram by 6% this year alone.
AI has also been critical in maintaining high engagement levels by delivering personalized and relevant content. A good example is Meta’s AI-driven video suggestions, which have helped surface trending and engaging Reel content, keeping users active for longer periods.
Overall, I believe that such a sustained growth rate is remarkable. In fact, Meta’s five-year average revenue CAGR of 18.1% indicates that the company is showing no signs of slowing down. I think it makes sense to remain optimistic about Meta’s future revenue growth. AI tools, such as generative image tools, have only now begun rolling out but are already improving ad targeting and making ads more visually stimulating. This kind of innovation is likely to keep fueling Meta’s top and overall monetization potential.
Profitability Soars Due to Scale and Efficiencies
Meta’s profits also surged in Q3, with operating income increasing by 26% year-over-year to $17.4 billion and its operating margin expanding to 43% from 40% last year. This margin expansion was driven by economies of scale as Meta’s user base grew and by measures aimed at streamlining costs.
For example, Meta has pursued automation in data center management, thus reducing labor costs, optimizing resource allocation, and lowering operational expenditures. The decline in general and administrative expenses by 10%, largely due to lower legal expenses, also contributed to this margin boost. In turn, earnings surged by 35% year-over-year to $15.7 billion, while diluted EPS rose by 37% to $6.03, further aided by buybacks.
Surging Profits Expose Meta’s Cheap Valuation
Despite the stock’s prolonged rally over the past year, as I mentioned earlier, Meta’s surging profits make its current valuation appear notably cheap, in my view. Based on Meta’s year-to-date numbers and management’s outlook, consensus estimates place Meta’s 2024 EPS at $22.51. At the current stock price, this implies a price-to-earnings (P/E) ratio of just 25.2. This is a relatively cheap multiple, considering Meta’s ongoing momentum and favorable position in an AI-powered future.
I also find it interesting that Wall Street’s EPS estimates for next year, projecting growth of just 11.7%, are likely quite conservative, too, as they imply a significant slowdown. A similar scenario took place last year when Wall Street’s initial EPS estimate for 2024 was $17.33, significantly lower than the updated estimate of $22.51 today, which Meta will likely be able to beat, too.
Thus, I believe the market is underestimating Meta’s potential to sustain strong earnings growth. This makes the current and forward valuation multiples a compelling catalyst for continued upside.
Is META Stock a Buy, According to Analysts?
Wall Street sentiment toward Meta Platforms remains highly optimistic, with analysts collectively rating the stock as a Strong Buy. Over the past three months, Meta has gathered 41 Buys, three Holds, and just one Sell. The average META price target of $654.23 implies a potential upside of 14.29% from current levels.
See more TICKER analyst ratings
If you’re unsure which analyst to trust for trading META stock, Ronald Josey of Citi stands out as the most accurate over a one-year timeframe. His recommendations have delivered an average return of 40.90% per rating, with an impressive 82% success rate.
Conclusion
Overall, Meta Platforms once again exhibited tremendous growth across its key operating metrics in Q3, driving impressive top and bottom line gains. With an ever-expanding user base, AI-powered tools that drive heightened engagement, and rising ad pricing trends, I believe Meta remains well-positioned for sustained long-term success. In the meantime, despite a significant rally, the stock remains attractively valued, suggesting continued upside potential ahead.
