Meta Earnings: Early Look at Muse Adoption Impresses Investors

Key Morningstar Metrics for Meta

• Fair Value Estimate
  : $850
• Morningstar Rating
  : ★★★★
• Morningstar Economic Moat Rating
  : Wide
• Morningstar Uncertainty Rating
  : High

What We Thought of Meta’s Earnings

Meta META reported third-quarter results that included top-line growth of 26% to $64.6 billion and adjusted operating margins contracting 500 basis points to 35%. Rising AI-related costs continue to drive the margin contraction. Meta expects fourth-quarter sales to grow between 21%-27%.

Why it matters: Investors have been concerned about Meta’s ability to monetize its AI investments. We see the company’s momentum in its core advertising business as well as adoption of Muse, both on the consumer and enterprise side, as early signals that the firm’s AI playbook is working.

• In the core ads business, we saw a healthy growth mix from both impressions, up 10%, and price, up 14%. We see AI-driven content and ad-tech improvements driving this strong growth, and we believe they’re increasing Meta’s wallet share in the broader digital advertising market.
• While still early, with management calling out 10 million users in the first month, we think Muse agents, both personal and business, could help create new monetization streams for Meta. We also see agents as expanding Meta’s total time spent across its services over time.

The bottom line: We maintain our $850 fair value estimate for wide-moat Meta. With shares trading up, likely due to continued investor excitement around the firm’s AI progress, we view them as undervalued.

• We reiterate our view that Meta has a multivariate AI monetization opportunity, with the firm being able to monetize via ads, selling intelligence to customers via Meta Enterprise, selling excess compute to other AI labs, and capturing agentic commerce revenues via revenue sharing.
• While agentic commerce take rates, subscription sales for AI, and enterprise revenue are not included in our model, we believe that the firm is laying the groundwork to be able to scale these revenue streams, which could provide more revenue upside opportunity versus our estimates.