Meta Platforms META is emphasizing the use of artificial intelligence (AI) to boost user engagement on its social offerings: Facebook, Instagram, WhatsApp and Threads. AI is heavily dependent on data, of which META has a trove, driven by its more than 3.35 billion daily users.
In the recently concluded fourth quarter of 2024, daily active user base continued to grow across Facebook, Instagram and WhatsApp on a year-over-year basis, both globally and in the United States, reflecting strong engagement levels.
Global video time grew at a double-digit percentage on a year-over-year basis on Instagram. Video time spent on Facebook in the United States also increased at a double-digit rate. AI-driven ranking system has been responsible for this growth rate, which Meta Platforms expects will continue in 2025.
META’s Llama family of foundation models has been a game changer. The Llama 4 models, expected to be released this year, will offer new modalities, capabilities and stronger reasoning. It is anticipated to be much faster than Llama 3 models.
Meta AI usage continues to increase, with more than 700 million monthly actives. The company’s initiative to add updates that will help Meta AI deliver more personalized and relevant responses is expected to boost engagement. Meta AI can now remember certain details from prior queries made by users. It now has a better idea about user interests and preferences as it continues to analyze content that users engaged with on Facebook and Instagram in their previous interactions.
META’s Focus on Creators to Boost Content
META’s focus on updating features that support Creators on Instagram is a key catalyst. The company continues to prioritize original posts in recommendations that help users discover smaller creators.
META’s latest feature, introduced in the fourth quarter of 2024, allows creators to first share a Reel with users who do not follow them. This allows creators to test content and decide what’s best for their followers, simultaneously expanding footprints among an entirely new audience.
Expanding creative tools like the upcoming standalone app, Edit, will make it easier for creators to make reels on their phones.
Meta Platforms is introducing a number of updates to its recommendation systems on Threads to prioritize more recent posts, content from top creators, and more content from accounts users follow.
Users can now share custom public feeds on Threads. This will help them connect with people with similar interests and find profiles and conversations that are relevant to them. This is expected to further boost user engagement.
META’s AI-Driven Ad System Boosts Advertiser Returns
Higher advertising revenues have been a key catalyst in driving META shares. In the trailing 12 months, shares have surged 54.8%, outperforming the Zacks Internet Software industry’s return of 33.6% and the Zacks Computer & Technology sector’s return of 25.3% over the same time frame.
The momentum in advertising revenues has also helped META outperform its peers, including YouTube-parent Alphabet GOOGL and Snap SNAP. Shares of Alphabet have returned 43.2% while Snap has declined 33.5%.
META Outperforms Peers
Image Source: Zacks Investment Research
Meta Platforms focuses on improving advertisers’ return on ad spending. META is leveraging its proprietary machine learning system, Andromeda, for retrieval in ad recommendation. The system is powered by NVIDIA’s NVDA Grace Hopper Superchip and Meta Training and Inference Accelerator hardware. The retrieval stage processes tens of millions of ads into a few thousand relevant ads, which are further processed by sophisticated ranking models to determine the final ads to be shown on its platforms.
Andromeda improves the performance of the company’s advertising system by delivering more personalized advertisements to viewers. The deployment of META’s deep neural network on the NVIDIA Grace Hopper Superchip across Instagram and Facebook applications has achieved more than 6% recall improvement to the retrieval system while delivering over 8% ad quality improvement on selected segments.
The growing usage of Advantage+ by advertisers is noteworthy. More than 4 million advertisers are now using at least one of Meta Platforms’ generative AI (Gen AI) ad creative tools, up from one million six months ago.
META’s Estimate Revision Shows Upward Movement
The Zacks Consensus Estimate for first-quarter 2025 earnings is pegged at $5.61 per share, up 4.08% over the past 30 days, indicating a 19.11% year-over-year increase.
The consensus mark for 2025 earnings is pegged at $26.66 per share, up 5.88% over the past 30 days, indicating an 11.74% increase over 2024.
META’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 13.77%.
Meta Platforms, Inc. Price and Consensus
Meta Platforms, Inc. price-consensus-chart | Meta Platforms, Inc. Quote
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
META Stock is Trading at a Premium
However, META stock is not so cheap, as the Value Score of C suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales, META is trading at 9.31X, higher than its median of 7.69X and the broader sector’s 6.54X.
P/S Ratio (F12M)
Image Source: Zacks Investment Research
META Stock: Buy or Hold?
AI usage is making META a popular name among advertisers as well as users. However, Meta Platforms’ first-quarter 2025 results are expected to suffer from unfavorable forex (3% headwind to total revenue growth on a year-over-year basis).
Operating expenses are expected in the $114-$119 billion range with headcount expected to increase within infrastructure, monetization, Reality Labs, Gen AI, regulations and compliance. Regulatory concerns in the United States and Europe make the stock a risky bet.
META is spending hugely on expanding AI infrastructure. For 2025, capital expenditure is expected between $60 billion and $65 billion driven by its Gen AI initiatives and core business.
Although this bodes well for the company’s longer-term prospects, we believe the lack of monetization of new platforms like Threads is a concern. META plans to introduce ads on Threads gradually and doesn’t expect it to be a meaningful driver of overall impression or revenue growth in 2025.
META currently has a Zacks Rank #3 (Hold), which implies investors should wait for a more favorable point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
5 Stocks Set to Double
Each was handpicked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2024. While not all picks can be winners, previous recommendations have soared +143.0%, +175.9%, +498.3% and +673.0%.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>NVIDIA Corporation (NVDA) : Free Stock Analysis Report
Alphabet Inc. (GOOGL) : Free Stock Analysis Report
Snap Inc. (SNAP) : Free Stock Analysis Report
Meta Platforms, Inc. (META) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
