Metal Platforms stock (NASDAQ:META) has recorded an impressive rally over the past year, gaining more than 200% during this period. Nevertheless, I have not considered selling my shares once. The social media giant’s suite of apps, including Facebook, Instagram, and WhatsApp, continues to display growing user engagement. Simultaneously, the company has adeptly executed efficient cost-cutting measures, translating to superb earnings growth prospects. Consequently, I am bullish on the stock.
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Growing App Engagement, Improving Monetization Metrics
META’s latest quarterly report presents a plethora of commendable aspects. Yet, the true standout in its Q3 results lies in the astonishing user engagement metrics, which, in my view, border on the surreal at this point. At the same time, Meta’s strides in monetization prove noteworthy, as the company adeptly extracts increasing revenue from each user. Let’s take a deeper look.
User Growth Milestones Keep on Coming
In its Q3 results, Meta achieved a remarkable milestone, as its suite of apps reached a new high of 3.14 billion daily active users (DAUs), marking a noteworthy 7% increase from the previous year. The family’s monthly active users (MAUs) similarly experienced a substantial uptick of 7%, reaching an impressive 3.96 billion. Notably, this growth rate represents an acceleration compared to the preceding quarter’s 6%, indicating sustained momentum in the ecosystem with no signs of slowdown.
These figures clearly emphasize the powerful dynamics that META’s family of apps is able to produce. A key catalyst further solidifying Meta’s strength in sustaining and perpetually broadening its user base lies in the company consistently refining its products and adding new features. Refining Reels is a great example, as it has positioned META as a formidable contender against TikTok while improving user monetization.
Improvements in Monetization
Meta’s recent strides in monetization have been remarkable. I just mentioned that Reels has emerged as a formidable contender against TikTok, transforming from an initially awkward integration into a pivotal revenue driver. I clearly remember the shaky launch of Reels on Instagram, with its integration feeling clunky and out of sync with the platform’s photo-centric interface. Fast forward to today, and Reels has seamlessly woven itself into the core Instagram and Facebook experience.
The success of Reels has not only transformed its initial awkward impression but has become a significant driving force behind Meta’s financial accomplishments. During the Q3 earnings call, Mark Zuckerberg disclosed that Reels has played a pivotal role in boosting user engagement, contributing to a remarkable 40% increase in the time users spend on Instagram since its inception. This surge in user activity has, in turn, powered the platform’s advertising machinery.
META’s monetization improvement is vividly reflected in the remarkable 19.3% growth in average revenue per user (ARPU), reaching $11.23 per average user globally. Despite a 6% decrease in the average price per ad in Q3, primarily influenced by seasonal factors, the number of ad impressions across Meta’s Family of Apps surged by an impressive 31%. This strong uptick underscores the substantially increased user engagement within Meta’s platforms, clearly driven by the potent success of Reels’ rising monetization.
Cost Control Initiaves Bear Fruit
Meta’s cost-cutting initiatives, including slashing its workforce by 13% last year, have started to bear fruits. META’s revenue growth was also strong at 23%, driven by strong user growth and growing APRU, as mentioned earlier. The combination of higher revenues and cost-cutting measures led to META’s operating margin jumping to an eye-watering 40%, doubling from last year’s 20%. Consequently, EPS for the quarter skyrocketed by 168% to $4.39.
Following Meta’s robust performance in Q3, consensus estimates project a notable surge in the company’s EPS to $14.34 for FY2023, reflecting an impressive 67% year-over-year increase. Looking ahead, there is anticipation of a continued upward trajectory, with a projected 21% rise to $17.29 in Fiscal 2024.
Despite the considerable gains and the forward price-to-earnings ratio (P/E) of 23.6 for the current year, I am inclined to believe that this valuation doesn’t necessarily indicate the stock is overvalued. While it may not be as attractively priced as the previous year, the combination of META’s strong moat, robust growth prospects, rich profit margins, and active share repurchases collectively present a compelling case for justifying the current multiple.
Is META Stock a Buy, According to Analysts?
Regarding Wall Street’s sentiment on the stock, Meta Platforms maintains a Strong Buy consensus rating based on 37 Buys and one Hold assigned in the past three months. At $386.06, the average META stock forecast implies 15.35% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell META stock, the most profitable analyst covering the stock (on a one-year timeframe) is Rohit Kulkarni from Roth MKM, with an average return of 42.98% per rating and an 84% success rate. Click on the image below to learn more.
The Takeaway
META’s massive rally over the past year might lead less confident investors to contemplate selling their shares. However, I believe that the stock’s investment case leaves room for further upside ahead.
Management’s focus on user engagement, evident in the impressive Q3 results, showcases the enduring appeal of its suite of apps. Further, monetization improvements, particularly the success of Reels, have significantly contributed to Meta’s revenue growth. Combined with effective cost-cutting initiatives, the company’s strong earnings outlook signals continued prosperity. Given this robust foundation and bright growth avenues, I remain bullish on META’s stock.
