Meta Platforms META shares hit a 52-week high of $614.20 on Dec. 3 and finally closed at $613.65, up 73.3% year to date (YTD). Its shares have outperformed the Zacks Internet Software industry’s gain of 37.8% and the Zacks Computer & Technology sector’s return of 30.6% over the same time frame.
Is there still room for the META stock to run? Let’s find out.
META’s AI-Driven Ad System Boosts Advertiser Returns
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.
Meta Platforms focuses on improving advertisers’ return on ad spending. 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.
Advantage+ is helping advertisers streamline campaign management and boost performance through more ads in the system for different audiences. AI is helping META retain advertisers who are leveraging its generative AI-powered image expansion, background generation, and text generation tools to boost business. META estimates that businesses using Image Generation are seeing a 7% increase in conversions.
Meta Platforms’ advertising revenues (98.9% of Family of Apps revenues) increased 18.6% year over year to $39.89 billion and accounted for 98.3% of third-quarter 2024 revenues. At constant currency, revenues increased 23% year over year.
META Outperforms Peers YTD
META Shares YTD Performance
Image Source: Zacks Investment Research
META has outperformed its social media peers, including YouTube-parent Alphabet GOOGL and Snap SNAP on a YTD basis.
Shares of Alphabet have returned 22.6%, while Snap has dropped 24.1%.
Meta Platforms’ focus on leveraging AI to improve user engagement is a key catalyst. AI is heavily dependent on data, of which META has a trove, driven by its more than 3.2 billion daily users. Meta Platforms has been leveraging AI to improve the potency of its platform offerings, including WhatsApp, Instagram, Messenger and Facebook.
Its staggering reach and increasing ad impressions (up 7% year over year in the third quarter of 2024) make META one of the most important players in the digital ad sales market, apart from Alphabet.
Threads now has more than 275 monthly actives, and META expects Engagement to be its next major social app.
META’s Llama family of foundation models has been a game changer. Llama token usage has grown exponentially in 2024. The Llama 4 models, expected to be released next year, will offer new modalities, capabilities and stronger reasoning. It is anticipated to be much faster than Llama 3 models.
Availability of Llama in U.S. government agencies is expected to boost adoption. Meta Platforms is bringing Llama to government agencies through its partnerships with Accenture Federal Services, Amazon Web Services, Anduril, Booz Allen, Databricks, Deloitte, IBM, Leidos, Lockheed Martin, Microsoft, Oracle, Palantir, Scale AI and Snowflake.
META’s Estimate Revision Shows Upward Movement
Meta Platforms expects total revenues between $45 billion and $48 billion for the fourth quarter of 2024, assuming a neutral forex impact on year-over-year revenue growth.
The Zacks Consensus Estimate for fourth-quarter 2024 earnings is pegged at $6.76 per share, up 0.6% over the past 30 days, indicating a 26.83% year-over-year increase.
The consensus mark for fourth-quarter 2024 revenues is pegged at $47 billion, indicating a 17.17% year-over-year increase.
META’s earnings beat the Zacks Consensus Estimate in the trailing four quarters, the average surprise being 11.34%.
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.
The Zacks Consensus Estimate for 2024 earnings is pegged at $22.68 per share, up 7 cents over the past 30 days, indicating a 52.52% increase over 2023.
The consensus mark for 2024 revenues is pegged at $163.11 billion, indicating a 20.91% year-over-year increase.
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 8.36X, higher than its median of 7.53X and the broader sector’s 6.25X.
P/S Ratio (F12M)
Image Source: Zacks Investment Research
Conclusion
META’s growing footprint among young adults, driven by improving recommendations, boosts competitive prowess. AI usage is making it a popular name among advertisers. This is expected to drive top-line growth and help the momentum continue in META shares.
META currently has a Zacks Rank #2 (Buy) and a Growth Score of B, a favorable combination that offers a strong investment opportunity, per the Zacks Proprietary methodology. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
