Meta Platforms META shares have returned 66.5% year to date, underperforming the Zacks Computer & Technology sector’s return of 30.4% and the Zacks Internet Software industry’s appreciation of 30%.
Except for NVIDIA NVDA, it has outperformed the rest of “Magnificent 7” over the same time frame. The group includes Alphabet GOOGL, Amazon, Microsoft MSFT, NVIDIA, Apple and Tesla, apart from META.
YTD, NVIDIA, Amazon, Tesla, Alphabet, Apple, and Microsoft returned 198.1%, 37%, 29.3%, 27.7%, 17.9% and 12.4%, respectively.
Meta Platforms’ focus on leveraging AI to improve user engagement is a key catalyst. The launch of a unified video player and improved AI-powered recommendation has increased time spent on Facebook by 8% and 6% on Instagram.
META Outperforms Sector YTD
Image Source: Zacks Investment Research
AI is helping META retain advertisers who are leveraging its generative AI-powered image expansion, background generation, and text generation tools to boost business. META estimates that businesses using Image Generation are seeing a 7% increase in conversions.
Meta Platforms’ advertising revenues (98.9% of Family of Apps revenues) increased 18.6% year over year to $39.89 billion and accounted for 98.3% of third-quarter 2024 revenues. At constant currency, revenues increased 23% year over year.
META’s Data Trove Makes the Stock an AI Behemoth
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.
Meta Platforms is leveraging AI to boost Facebook’s appeal among young adults, a demography that used to prefer YouTube and Snapchat. It has launched new features for Facebook users, particularly young adults (18-29-year-olds), to access and discover content beyond their close friends.
The launch of Teen Accounts that limit who teens are messaging and what content they can see has added an extra layer of protection for teenagers, making the platform much safer.
Meta Platforms launched Matchmaker, a new feature on Facebook Dating that allows users to invite up to five friends to swipe for potential matches on their behalf.
Threads now has more than 275 monthly actives, and META expects Engagement to be its next major social app.
META has started rolling out Meta AI and is on track to achieve its goal of becoming the most used AI assistant by the end of the year. Meta AI currently has more than 500 monthly actives.
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.
Availability of Llama in U.S. government agencies is expected to boost adoption. Meta Platforms is bringing Llama to government agencies through its partnerships with Accenture Federal Services, Amazon Web Services, Anduril, Booz Allen, Databricks, Deloitte, IBM, Leidos, Lockheed Martin, Microsoft, Oracle, Palantir, Scale AI and Snowflake.
META’s Estimate Revision Shows Upward Movement
Meta Platforms expects total revenues between $45 billion and $48 billion for the fourth quarter of 2024, assuming a neutral forex impact on year-over-year revenue growth.
The Zacks Consensus Estimate for fourth-quarter 2024 earnings is pegged at $6.70 per share, up 7.02% over the past 30 days, indicating a 25.7% year-over-year increase.
Meta Platforms, Inc. Price and Consensus
Meta Platforms, Inc. price-consensus-chart | Meta Platforms, Inc. Quote
The consensus mark for fourth-quarter 2024 revenues is pegged at $47.03 billion, indicating a 17.24% year-over-year increase.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
The Zacks Consensus Estimate for 2024 earnings is pegged at $22.53 per share, up 5.4% over the past 30 days, indicating a 51.51% increase over 2023.
The consensus mark for 2024 revenues is pegged at $162.97 billion, indicating a 20.81% year-over-year increase.
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 ratio, META is trading at 8.11X, higher than its median of 7.47X and the broader sector’s 6.39X.
P/S Ratio (F12M)
Image Source: Zacks Investment Research
Here is Why META Shares are a Buy
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.
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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