To The Moon

Meta share price has booked a 139% gain since the beginning of the year, making it the second top performer in the S&P 500, right after Nvidia. Following the release of yesterday's results, the stock continued its upward trajectory, surging by an additional 7% during after-market hours.

Here's why...

The Good:

1) Revenue growth was 11% and that's a rather strong growth on the backdrop of a slowing economy and ad spend. The last time Meta had a double digit percentage revenue growth was in 4Q2021. In contrast, Google ad revenue grew just 3% while Snap saw a 5% decline. Thus, Meta's ad revenue growth was impressive, alleviating concerns that advertisers are leaving the platform due to Apple's privacy restrictions affecting ad targeting.

2) Despite the ongoing investments in metaverse and the layoff costs, Meta managed to generate a 21% growth in its earnings per share! Meta had been witnessing a decline in EPS growth for six consecutive quarters prior to this reversal. This positive shift in earnings is welcomed by investors, as it demonstrates that Meta can strike a balance between investing in the metaverse and ensuring healthy earnings growth.

3) The momentum of Meta's growth remains strong, as indicated by the guidance from the CFO for 3Q2023, projecting revenue between $32 billion and $34.5 billion. This translates to an impressive 15% to 24% year-on-year revenue growth, signaling a renewed acceleration in the company's growth trajectory. It is evident that Meta has undergone a turnaround, and the surge in share price is a clear indication of investors recognizing and acknowledging this positive transformation.

The Bad:

1) The metaverse is a highly uncertain product - do people really want it? One thing for sure they aren't buying the VR headsets now considering that Reality Lab's sales have dropped to $276m, the lowest level in the past two years. Losses continued to be in the billions ($3.7b in 2Q2023.) The CFO expects the metaverse operating losses to increase for the entire 2023.

2) Although capital expenditures in 2Q2023 decreased by 18% to $6.4 billion compared to the previous year, the total CAPEX for the first six months of 2023 still surpassed last year's spending. The CFO also expects higher data center and server costs next year due to the investments made over the years, and would increase depreciation expenses in 2024. These increase in operational requirement was to support Meta's AI and metaverse endeavors.

In summary, Meta's recent results are positive, with faster growth compared to competitors in the advertising space. The company has successfully undergone a turnaround, with profits on the rise, alleviating shareholders' concerns about its metaverse spending. The reassuring guidance for the next quarter further adds to the optimism surrounding Meta's performance.