Meta Earnings: Stock Now Fairly Valued After Latest Selloff

Key Morningstar Metrics for Meta Platforms

• Fair Value Estimate: $400.00
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: High

What We Thought of Meta’s Earnings

Meta Platforms META posted a solid first quarter while modestly disappointing relative to the FactSet consensus, putting the firm on a path to exceed our 2024 revenue expectations. However, the firm increased its budget for both full-year operating expenses and capital spending, with CEO Mark Zuckerberg convinced it should “invest significantly more [in artificial intelligence] in the coming years.” He expects a big step up in investment before AI services generate meaningful direct revenue.

After accounting for faster revenue and expense growth in our forecast, we’re leaving our fair value estimate at $400 per share. With the selloff following the earnings release, we believe the shares are fairly valued.

Total revenue increased 27% to $36.5 billion during the first quarter, with growth accelerating across geographies. Meta served 3.24 billion daily users across its apps during the quarter, up 7% from a year ago. The volume of ads delivered increased 20% year over year, indicating continued strong growth in engagement thanks to improving content recommendations, a practical benefit of recent AI investment. Meta indicated that more than 50% of the content delivered on Instagram and 30% on Facebook is now AI-recommended. Ad pricing increased 6% year over year, showing continued acceleration from the fourth quarter after nearly two years of declines as advertiser demand remains strong.

Operating expenses increased 6% compared with a year ago, with headcount increasing for the second consecutive quarter. The operating margin expanded to 38% from 25% a year ago. Meta now expects operating expenses to total $96 billion-$99 billion this year, raising the low end of its prior forecast range from $94 billion. Capital spending is expected in the range of $35 billion-$40 billion, up from $30 billion-$37 billion, and the firm again said that it plans to increase spending further in 2025.