Amid the recent decline in tech stocks, Meta Platforms (META) stock has maintained its strong standing among mega-cap performers. Its shares have risen more than 40% over the past six months, crushing the 2% rise in the S&P 500 index. With its 1.5% rise over the past thirty days, META stock is up close to 160% year to date, compared with a 10% rise in the S&P 500 index.
The social media giant is set to report third quarter fiscal 2023 earnings results after the closing bell Wednesday. Given the stock’s strong outperformance relative to its peers, investors want to know how much better things can get. Its management has pushed all of the right buttons, including various cost optimization initiatives, many of which have enabled Meta to lower its 2023 expense guidance on two occasions this year.
These initiatives not only puts the company in a much stronger financial standing in the near term, it is poised to improve in the long term as cost efficiencies are further realized. In the most recent quarter, revenue rose by a solid 11% year over year, while adjusted EPS expanded from $2.46 to $2.98. During the quarter, gross margin remained steady above 81% with the operating margin expanding from 29% to almost 32% which powered the cash flow from operations to surge by almost 50%.
These fundamental improvements are notable and important to bottom line given the recent headwinds in the macro environment. Meta has also begun to flex its growth muscle within its core digital advertising business given that it boasts an estimated 3 billion monthly active users on its family of products. As such, the company on Wednesday must continue to show gradual improvements in these areas, while demonstrating its prominence among big tech for the quarter and full year.
For the three months that ended September, the Menlo Park, Calif.-based company is expected to earn $3.45 per share on revenue of $31.85 billion. This compares to the year-ago quarter when earnings were $1.64 per share on revenue of $27.71 billion. For the full year, ending in December, earnings are projected to rise 47.6% year over year to $12.68 per share, while full-year revenue of $125.33 billion would rise 7.5% year over year.
The near 50% rise in full-year earnings per share is the result of the aforementioned various cost cutting measures the company has undertaken to become leaner and more profitable, many of which have enabled Meta to lower its 2023 expense guidance on two occasions. Most recently, Meta lowered expenses to between $27 billion and $30 billion, down from a previous range of $30 billion to $33 billion, thanks to cost savings in non-AI servers and spending shifts into 2024.
There is also optimism that Meta can easily surpass its year-over-year revenue and profit comparisons as the global digital ad spending is expected to grow to roughly $422.8 billion this year, rising 7.2% year over year. The company on Wednesday must continue to show gradual revenue improvements in that area. In the second quarter, Meta earned an adjusted $2.98 per share on $32 billion in revenue, beating EPS by 7 cents, while revenue exceed estimated by roughly $1 billion.
During the quarter, Facebook’s wider "family of apps" (including Instagram and WhatsApp) saw daily active people rise 7% year over year to 3.07 billion, while monthly active people rose 6% to 3.88 billion, both beating consensus expectations. Given that the company now boasts an estimated 3.03 billion monthly active users on its family of products, Meta stock will continue to outperform as long as the company flex its growth muscle within its core digital advertising business.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Richard Saintvilus
After having spent 20 years in the IT industry serving in various roles from system administration to network engineer, Richard Saintvilus became a finance writer, covering the investor's view on the premise that everyone deserves a level playing field. His background as an engineer with strong analytical skills helps him provide actionable insights to investors. Saintvilus is a Warren Buffett disciple who bases his investment decisions on the quality of a company's management, its growth prospects, return on equity and other metrics, including price-to-earnings ratios. He employs conservative strategies to increase capital, while keeping a watchful eye on macro-economic events to mitigate downside risk. Saintvilus' work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets. You can follow him on Twitter at @Richard_STv.
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