Meta Platforms (NASDAQ:META) recently posted its Q2 results, with all key metrics across the board coming in incredibly strong. The company is firing on all cylinders, defying bears by showcasing growing user engagement, efficient monetization, and a strong pipeline of products to support its future success.
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In the meantime, despite the stock’s massive rally from its 52-week low of $88, which was further extended following Meta’s Q2 reports, shares of Meta continue to present an attractive opportunity, in my view. Even at $314, Meta stock appears reasonably valued against its earnings growth prospects. Accordingly, I remain bullish on Meta stock, which is currently one of my biggest holdings.
Unreal User Engagement Metrics, Excellent Monetization
To me, the most spectacular part of Meta’s Q2 results was the company’s user engagement metrics, which almost seem unreal at this point. Simultaneously, I found Meta’s advancements in monetization to be excellent, with the company managing to continuously squeeze more cash out of each user. Let’s take a deeper look!
Monthly User Growth Persists
Meta’s reach seems boundless, as its family of apps captivates more than a third of the global population each month. The allure of Facebook, Instagram, and WhatsApp continues to grow, captivating an ever-expanding user base.
In its Q2 results, Meta celebrated another fine milestone, with Facebook alone boasting 3.03 billion monthly active users (MAUs), up 3% compared to the previous year. The broader Meta ecosystem saw an even more remarkable surge, with a staggering 3.88 billion family MAUs across all platforms, representing a 6% growth rate.
These numbers unequivocally highlight the profound potency of the network effect that the company has meticulously nurtured. Another pivotal factor that undeniably bolstered Meta’s ability to maintain and continuously expand its user base is its unwavering commitment to refining the Reels product to compete head-on with TikTok.
I vividly recall Reels’ initial release on Instagram, which left a somewhat awkward impression. The integration felt clunky and didn’t seamlessly align with Instagram’s photo-oriented user interface. Yet, today, Reels exude a remarkable smoothness. Anecdotally, I also find that its algorithm has become almost as captivating as TikTok’s, making it equally addictive to users.
Success in Monetization
A growing number of users wouldn’t mean much if Meta didn’t find success in monetization. Thankfully, the people at Meta are the experts in turning a growing number of eyeballs into a growing amount of dollars. As mentioned, the significant success of Reels has been a great contributor in that regard.
During the earnings call, Meta founder and CEO Mark Zuckerberg quantified Reels’ success, mentioning that Reels plays now surpass 200 billion per day across Facebook and Instagram. The company has also managed to make great progress in monetizing Reels, whose annual revenue run rate across both apps has now surpassed $10 billion, a massive increase from $3 billion last fall.
Meta’s overall success in monetization is more broadly depicted in its average revenue per user growth (ARPU), which grew by 8.2% to $10.63 per average user worldwide. While the average price per ad fell by 16% in Q2, which is mostly due to seasonality, ad impressions delivered across Meta’s Family of Apps rose by 34%. The staggering growth in ads delivered highlights the considerably higher user engagement in Meta’s ups, which can largely be attributed to the significant success of Reels’ rising monetization.
Expense Control to Result in Strong Earnings Rebound
Investors’ skepticism about Meta’s profitability in the previous year has been swiftly dispelled, thanks to the company’s proactive approach towards enhancing efficiency. Through robust expense control measures, Meta’s earnings have staged a notable rebound, which is set to last, moving forward.
Specifically, in Q2, the company’s EPS soared to $2.98, an impressive 21% increase compared to the same period last year. It is important to note that despite facing a 14% reduction in headcount year-over-year, Meta had to contend with additional charges of $780 million due to ongoing restructuring and severance costs associated with recent layoffs.
If we were to exclude these one-off items, it becomes evident that the earnings growth would have been even more substantial. In fact, this indicates the potential for further margin expansion in next year’s results, when these transitional costs will have been completely resolved.
Following Meta’s Q2 results, consensus estimates point towards the company achieving EPS of $13.36 in FY2023, up 55.5% year-over-year. A further increase of 21% to $16.18 is expected for Fiscal 2024. The current success of Reels, the untapped potential of WhatsApp, and the possibility of generating additional revenue through the recently launched Threads by next year’s end all contribute to my conviction that Fiscal 2024’s estimate is rather conservative, especially given the lack of this year’s one-off costs.
Is META Stock a Buy, According to Analysts?
As far as Wall Street’s sentiment on the stock goes, Meta Platforms maintains a Strong Buy consensus rating based on 39 Buys and two Holds assigned in the past three months. At $377.70, the average META stock price prediction implies 20.17% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell META stock, the most accurate analyst covering the stock (on a one-year timeframe) is Rohit Kulkarni from Roth MKM, with an average return of 39.2% per rating and an 81% success rate. Click on the image below to learn more.
The Takeaway
Meta Platforms’ Q2 results showcased spectacular user engagement metrics and excellent monetization, reinforcing the stock’s bullish investment case. With over one-third of the global population using its apps monthly and remarkable success in turning eyeballs into revenue, Meta certainly didn’t fail to impress.
In the meantime, the company’s proactive expense control measures have resulted in a strong earnings rebound. In fact, even after the stock’s spectacular rally, Meta’s rebound in earnings (which is expected to continue) implies that shares are trading at a forward P/E of roughly 20x when looking out to the end of 2024.
Given Meta’s momentum in Reels, efficiency-driven initiatives bearing fruit, and earnings growth possibly beating current projections, I find the stock’s valuation particularly attractive. Thus, I remain bullish on META stock.
