What Happened?
Shares of social network operator Meta Platforms (NASDAQ:META) fell 6.2% in the afternoon session after the company reported underwhelming third-quarter earnings. Its Daily Active People (DAP, a disclosed volume metric) missed, and it called for "significant capital expenditure growth in 2025" without pinpointing a specific number. Expenses rose due to investments in infrastructure and AI, and these are likely to eat into profitability in the near term. Notably, Reality Labs accounted for a $4.4 billion in operating loss during the quarter, a large loss that is similar to last quarter.
Also, while bets like Threads and Meta AI have recorded promising user growth; they are not expected to contribute significantly to near-term revenue, as monetization for these products remains in development. On the other hand, Meta blew past analysts' EBITDA and EPS expectations, highlighting pockets of strengths. Overall, this quarter highlighted pockets of challenges that need to be surmounted in the coming quarters.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Meta? Access our full analysis report here, it’s free.
What The Market Is Telling Us
Meta’s shares are not very volatile and have only had 5 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was 9 months ago when the stock gained 21.9% on the news that the company reported fourth-quarter results with revenue, operating income, and EPS, all exceeding analysts' estimates. These beats were driven by better-than-expected daily active users along with a 21% year-on-year increase in ad impressions. Meta also saw a 2% tailwind in advertising pricing. Commentary across the sector suggests the advertising market is likely to rebound in 2024, partly explaining why Meta had a strong quarter.
Looking ahead, Meta's Q1 2024 revenue guidance topped Wall Street's forecast, while its anticipated full-year 2024 capital expenditures came in slightly higher. The company expects this capex growth to come from investments in servers, including AI and non-AI hardware (you're welcome, Nvidia), and data centers as it ramps up construction for its new data center architecture.
These investments will be key for its open-source large language model, Llama, to successfully compete against OpenAI's closed-source ChatGPT. Perhaps the most interesting part of the quarter was the announcement of a quarterly dividend - the first in the company's history. Overall, this was a really good quarter that should please shareholders.
Meta is up 62.7% since the beginning of the year, and at $563.36 per share, it is trading close to its 52-week high of $595.94 from October 2024. Investors who bought $1,000 worth of Meta’s shares 5 years ago would now be looking at an investment worth $2,940.
Unless you’ve been living under a rock, it should be obvious by now that generative AI is going to have a huge impact on how large corporations do business. While Nvidia and AMD are trading close to all-time highs, we prefer a lesser-known (but still profitable) semiconductor stock benefitting from the rise of AI. Click here to access our free report on our favorite semiconductor growth story.
