Technology stocks have gotten hit -- but not all of them equally. It's time to take a look at Meta Platforms.
Accelerating profits had driven the sector higher earlier this year, but third-quarter earnings results haven't been quite strong enough to provide a meaningful boost to tech, or tech-adjacent, stocks. Case in point: Alphabet (ticker: GOOGL), which is down about 6% since it reported better-than-expected earnings on Oct. 24 after gaining 50% to start the year. The Technology Select Sector SPDR exchange-traded fund $(XLK)$ is down about 8% from its record high hit in late July.
Meta (META) has held up a bit better. The stock is down just 0.1% since earnings and has recovered more than half of its post-release loss. It's down only 5% from its 52-week high, better than the other members of the Big Seven except Microsoft $(MSFT)$. What's more, the stock held price support at $275 and looks to be heading higher.
"META remains the best on the board absolutely and relatively," writes Rich Ross, head of technical analysis at Evercore, who recommends buying shares.
This isn't just a technical play. Meta's business remains strong and is continuing to grow. Its third-quarter sales rose 25% to $34.1 billion, beating estimates of $33.6 billion, driven by higher-than-anticipated average revenue per user. Meta continues to further monetize its user base by increasing users' time spent on its platforms, a great deal of which is attributable to Instagram reels. The company is also layering in more advertisements, using artificial intelligence to better match users with the right ads. These initiatives are helping the company take market share from other advertising companies, writes Mizuho analyst James Lee, and helping to boost sales.
Meta has also kept costs in check, leading to better profit margins and powering earnings to $4.39 a share, more than double the previous year and well above estimates for $3.64. One wrinkle, to be sure, was the company's warning about slower ad spending in the coming quarters, as brands prepare for waning consumer demand in the face of elevated interest rates.
Still, Wall Street is confident in the company's earnings outlook, with consensus estimates for 2024 profits up about 0.4% since before the earnings release. Overall, considering the company's recent execution in its new opportunities, "these trends give us more confidence in multi-year revenue growth," writes Morgan Stanley analyst Brian Nowak.
Analysts expect midteens annualized earnings growth over the next two years, which should pump the stock higher, especially considering that it isn't very expensive. Shares trade at just under 18 times earnings-per-share estimates for the coming 12 months, roughly in line with the S&P 500's multiple, even though the index is expected to grow earnings at about half Meta's growth rate.
That should keep market participants buying the stock for some time.
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