Meta Platforms is (META) the latest of the Magnificent Seven stocks to report quarterly results. Here’s what our analyst thought about the company’s update.
Meta reported a solid first quarter, with revenue growth and management’s second-quarter outlook modestly disappointing relative to the FactSet consensus, putting the company on track to beat our 2024 revenue expectations. However, the company increased its budget for both full-year operating expenses and capital expenditures, with CEO Mark Zuckerberg convinced that the company should “invest significantly more in the next few years” in artificial intelligence. Zuckerberg expects a big step up in investment before AI services generate meaningful direct revenue. After accounting for faster revenue and expense growth in our forecast, we leave our fair value estimate at $400 per share unchanged. With the sale after the earnings report, we believe that the shares are fairly valued.
Total revenue increased 27% to $36.5 billion in the first quarter, with growth accelerating across geographies. Meta served 3.24 billion daily users in its apps during the quarter, up 7% from a year ago. The volume of ads served increased by 20% year-over-year, indicating continued strong growth in engagement thanks to improved content recommendations, a practical benefit of recent AI investments. Meta indicated that more than 50% of content delivered on Instagram and 30% on Facebook is now AI-recommended. Ad pricing increased 6% year over year, showing continued acceleration from the fourth quarter after nearly two years of declines, as advertiser demand remains strong.
Operating expenses increased by 6% compared to the previous year, and the number of employees increased for the second quarter in a row. The operating margin increased to 38% from 25% a year ago. Meta now expects operating expenses to total $96-99 billion this year, raising the lower end of the range in its previous forecast from $94 billion. Capital spending is expected to be in the $35 billion-$40 billion range, up from $30 billion-$37 billion previously, and the company again said it plans to increase spending further in 2025.
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