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Meta Earnings: Stock Now Fairly Valued After Latest Selloff

Solid first quarter of revenue growth, but shares fall on higher spending plans.

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Meta Platforms Inc Class A

Key Morningstar Metrics for Meta Platforms

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.

Meta Platforms Stock vs. Morningstar Fair Value Estimate

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Michael Hodel

Sector Director
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Michael Hodel, CFA, is director of communications services equity research for Morningstar Research Services, LLC, a wholly owned subsidiary of Morningstar, Inc. He covers U.S. telecom service providers and related firms, including AT&T, Verizon, and Comcast. His team covers media companies, global telecom service providers, and owners of telecom infrastructure, such as wireless towers and data centers.

Hodel joined Morningstar in 1998. Prior to his current position, he spent two years as a portfolio manager for Morningstar Investment Management, LLC. Previously, he served as a technology strategist responsible for telecom research, chair of Morningstar’s Economic Moat Committee, and a senior member of Morningstar’s corporate credit ratings initiative.

Hodel holds a bachelor’s degree in finance, with highest honors, from the University of Illinois at Urbana-Champaign and a master’s degree in business administration from the University of Chicago Booth School of Business. He also holds the Chartered Financial Analyst® designation.

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