Meta Platforms META is scrapping its third-party fact-checking program in the United States, which was launched in 2016, to promote more free speech on its platform. Like Elon Musk’s X, META is empowering users with its Community Notes program to identify misleading or less contextual posts.
Facebook, Instagram and Threads users can now sign up to be among the first contributors as META plans to make the Community Notes program available in phases over the next couple of months in the United States.
META’s decision to loosen control over content monitoring is expected to boost user engagement. As the company abolishes restrictions and over-enforcement of rules over the next few weeks, users can feel encouraged to discuss more freely on topics like immigration and gender identity, subjects that are sensitive in nature and have been demoted by its automated system under the fact-checking program.
Meta Platforms will now focus on using automated systems to tackle illegal and high-severity violations, including terrorism, child sexual exploitation, drugs, fraud and scams. META’s system will now wait for user reports or complaints on less severe policy violations. It is also using AI large language models to provide a second opinion on content before demoting it.
META’s AI-Driven Ad System Boosts Advertiser Returns
The abolition of the fact-checking system and the proposed rule relaxations are expected to boost user involvement across META’s platforms. Although the chances of getting harmful content displayed also increase, extensive use of AI is expected to keep the platforms safer for users. This is expected to boost advertising revenues, which accounts for roughly 99% of META’s revenues.
Higher advertising revenues have been a key catalyst in driving META shares. In the trailing 12 months, shares have surged 73%, outperforming the Zacks Internet Software industry’s return of 40.2% and the Zacks Computer & Technology sector’s return of 37.7% 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 38.7% while Snap has dropped 26.4%.
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.
META’s Data Trove Aids Prospects
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.
META’s Estimate Revision Shows Upward Movement
The Zacks Consensus Estimate for first-quarter fiscal 2025 earnings is pegged at $5.40 per share, up a couple of cents over the past 60 days, indicating a 14.65% year-over-year increase.
The consensus mark for first-quarter fiscal 2025 revenues is pegged at $41.85 billion, indicating a 14.81% year-over-year increase.
META’s earnings beat the Zacks Consensus Estimate in all 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 fiscal 2025 earnings is pegged at $25.21 per share, up 0.5% over the past 60 days, indicating a 11.12% increase over 2024’s estimated earnings figure of $22.68 per share.
The consensus mark for fiscal 2025 revenues is pegged at $187.17 billion, indicating a 14.77% increase over 2024’s estimated figure of $163.09 billion.
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 8.32X, higher than its median of 7.62X and the broader sector’s 7.26X.
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 A, 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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