Meta Platforms (NASDAQ: META) delivered a genuinely exceptional Q2 report. The expectation was for signs the year of efficiency was paying off, but that story reverted to the original: Meta Platforms is a wicked hot growth company on track to post double-digit gains this year and next.
There are too many takeaways for 1 article; the bottom line is that the company outperformed expectations on all levels. This means that revenue growth is back, earnings are robust, and the stock is set to extend its rally, and it could be another double to triple-digit gains given the newly acquired leverage.
The year of efficiency is paying off, and it’s getting juiced by AI.
Meta Grows Revenue 11%: Shares Surge
Meta reported $32 billion in net revenue for a gain of 11% compared to last year, beating the consensus by nearly a billion or roughly 300 basis points. The gains were driven by a high-single-digit increase in daily active users and a mid-single-digit increase in monthly active users underpinned by AI.
CEO Mark Zuckerburg says AI-filtered picks have become the hottest growth avenue on Facebook and increased engagement by 7%. Threads, the latest growth effort, has gotten off to a good start as possible and will be improved upon over the next year.
The increase in engagement was seen in other metrics as well. Ad impressions increased by 34% to help leverage growth on the bottom line. The only bad news is that revenue per ad fell by 16% but not enough to offset the growth.
As for efficiency, the company’s margin was effectively flat for the year, but there are signs of strength within the data. The company’s cost of sales increased only 10% to lag the revenue gain and was offset by increased R&D spending. Income from operations increased by 12% and was aided by a lower tax to leave net income at +16%.
On the bottom line, the GAAP EPS of $2.98 outpaced consensus by only 240 bps compared to the 300 of top-line strength, but earnings are up 21% YOY compared to only 11% for revenue. The company expects to see Q3 revenue range from $32 to $34.5 billion, a range whose mid-point is above the consensus estimate.
Analysts Think Meta’s Rally Is Only Halfway Over
The analysts, 49 in total, are driving Meta Platforms higher. The takeaway from the post-release chatter is that the results are impressive; Zuckerburg has the company dialed in; the results are driven by strong execution, and Meta should continue to impress. Marketbeat.com has only picked up 2 official revisions in the 1st 12 hours after the release, but they are both upward.
Mizuho and New Street Research see the stock trading at $350 compared to the $295 consensus, now below the price action. The range of most recent targets is from $350 to $425, which assumes 16% to 40% more upside to come.
Meta Stocks Is Rocketing Higher: Don’t Chase Prices
Shares of Meta stock are rocketing higher on the Q2 news and may continue higher over the long term. A share repurchase program worth $40.91 billion, or 5.5% of the market, is still in place, and the market has solid support from the analyst.
The caveat today is that the 10% surge in share prices could result in a round of profit-taking and consolidation for the market. The share price may return to more solid support levels in that scenario before moving higher.
The $325 to $350 range could provide significant resistance to higher prices. That range is consistent with a consolidation zone in 2021 that led to a massive correction and today’s rally.
Investors should expect the price to be volatile within the zone, if nothing else, and for it to potentially contain the action through the end of the year.
