To The Moon

Summary Advertising performance exceeded expectations, creating a strong headwind effect for smaller platforms. TikTok's competition has slowed down, while Reels' commercialization has progressed smoothly, leading to improved revenue expectations. The comprehensive and vast social media ecosystem has the potential to replicate success in Threads. Following in the footsteps of $Microsoft(MSFT)$ and $Alphabet(GOOG)$ , $Meta Platforms, Inc.(META)$ announced its Q2 earnings report after-hours on July 26, surpassing market expectations significantly and raising Q3 guidance, resulting in over 8% post-market trading returns. Initially rebranding from Facebook to Meta Platforms (META) was intended to be associated with the metaverse narrative. However, after facing setbacks in two consecutive financial reports, Meta pragmatically abandoned this idea and refocused on its social business. Mark Zuckerberg's bold and unexpected actions of managing market expectations in reverse have surprisingly led to a bottoming-out and rebound of the company's stock price. Q2 Earnings Review Unlike $Snap Inc(SNAP)$ commercialization challenges, Meta's advertising business has been continuously thriving. MAU (Monthly Active Users) of the Facebook Family reached 3.03 billion, increasing by 40 million people, showing positive growth both quarterly and annually, with a 3.2% YoY increase. Additionally, the DAU (Daily Active Users) reached 2.065 billion, indicating a 5% YoY growth and a further improvement in the DAU/MAU ratio, reflecting user stickiness. Geographically, the Asia-Pacific region contributed significantly to the new active users, while Europe and America remained relatively stable, with a slight decline in Europe. The entire social media platform matrix achieved a monthly active MAP (Monthly Active People) of 3.88 billion, growing by 6.3% YoY, and a daily active DAP (Daily Active People) of 3.07 billion, increasing by 6.6% YoY. In terms of financials, Meta's Q2 revenue reached $32 billion, surpassing market expectations of $31.06 billion, with an 11% YoY growth, primarily driven by advertising revenue, which accounted for 98% of the total. However, Reality Labs' revenue declined by 39% YoY, casting a shadow over the metaverse business. The profit margin improved significantly, with an overall gross profit margin reaching 81.4%, hitting a three-year peak, and an operating profit margin of 29.4%. Diluted EPS (Earnings Per Share) stood at $2.98, reaching a new high since Q4 of 2021, showing a 21% YoY growth. Despite the impact of some layoffs during Q2, the operating profit margin is expected to rise further in Q3. Investment Highlights 1. Advertising business exceeded expectations due to both macroeconomic factors and the company's efforts. Similar to Google in the past, the market set low expectations for advertising-related businesses due to excessive concerns about a recession, creating ample room for surpassing expectations. Meta's increased commercialization efforts and optimization of advertising efficiency have allowed it to recover from the shadow of the iOS privacy policy changes. 2. Reels' commercialization progressed faster than expected. With Reels officially entering the commercialization phase in Q2, both user metrics and advertising revenue exceeded expectations, even though the advertising unit price declined. This can be attributed to Reels' competitive pricing and AI-assisted advertising, demonstrating its success. Additionally, Reels managed to capture more market share from TikTok, which is a significant achievement. 3. Threads' potential and higher profit levels. Threads, a product comparable to Twitter (now renamed X), gained 100 million users within three days of launch, primarily due to its strong integration with Facebook and Instagram, highlighting Meta's social media ecosystem advantage. However, the key focus for Meta is retaining users, and once a stable retention level is achieved, commercialization can be considered. In conclusion, if Meta continues its focus on commercialization across multiple aspects (open-source) and enhances operational efficiency (streamlining), it is not surprising for the operating profit margin to further increase in the second half of this year. Valuation and Price Target Based on the AH price of $319 on July 26, with a projected 2024 market expected EPS of $15.5, the forward P/E ratio is 20x, while the industry average P/E ratio for 2024 stands at 23.5x. Considering that more analysts may raise profit forecasts for the 2023/2024 fiscal years post the financial report, even with the post-market price of $319, there is still at least 20% upside potential.