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Bull of the Day: Meta Platforms (META)

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Meta Platforms ((META - Free Report) ) continues to see estimates rise after their last quarterly report and so it remains a Zacks #1 Rank Strong Buy based on its earnings momentum.

My colleague Derek Lewis wrote about the resurgence of META in early February after their 10% EPS beat and raised guidance.

Q4 EPS of $5.33 bested the year-ago number by a whopping 200%, while revenues of $40.11 billion beat the Zacks Consensus Estimate by 2.87% and jumped 24.7% year over year. At constant currency (cc), the top line improved 22%.

When Derek wrote about upward estimate revisions on February 7, analyst consensus for this year and next stood at EPS of $19.41 and $22.42 respectively.

Now those projections have risen to $19.94 and $23.09, representing 34% and 16% annual growth.

What About Reality Labs?

After Apple (
(AAPL - Free Report) ) made a big splash with their new mixed reality device Vision Pro, I decided to check in to see how Zuck & Co. are fairing with their line of VR/AR headsets known as Quest.

The division that makes and sells Quest gear is still a money-losing operation, but that's by design for their long-term development plan.

I recently wrote about META's Reality Labs for my forthcoming special report on the Metaverse because I wanted to investigate how and when this king-pin of social media advertising, commerce and communication would realize profits from this new technology realm.

You can get on the waiting list for that report by emailing Ultimate@Zacks.com and tell 'em Cooker sent you.

Core Growth = Cash to Invest

Besides the stock ramping 400% since its nadir in Q4'22, META revenues troughed at $117 billion in that year and tagged $135B in 2023. Even better, topline growth this year is projected to approach $160B for an 18% advance.

That resurgence in META's core business growth gives them room to experiment with the new technology platforms.

Here's what I wrote recently in my Metaverse report...

The launch of Meta Quest Pro was a small success, but it won’t move the needle on META earnings as word is that this is still a money-losing business for them. Meta's Reality Labs unit brought in more than $1 billion in fourth-quarter sales (the holiday quarter) but recorded an operating loss of $4.65 billion. Clearly, this is a division that Zuck & Co. can afford to invest in for a while.

According to AR Insider, whose team does a breakdown of quarterly revenue for the Meta Reality Labs unit, MRL’s topline was only $210 million in Q3 and they extrapolated that into $161.7 million for hardware sales. And these figures were down 24% sequentially and 27% year-over-year.

Plus, the cheaper Quest 2 still way out-sells the Quest Pro, with estimated revenue of $140 million. They concluded "Considering an average unit price of $315, this means that Meta sold approximately 443,931 Quest 2s in Q3." With Quest Pro’s estimated revenue at barely $9 million and a Q3 ASP of $999 (the price dropped from $1,499 in Q1 the AR Insider team noted) this means that Meta sold approximately 8,934 Quest Pros in Q3.

So for now, the META story is still about its consumer engagement and the ability of the platform to sell more advertising and automate the shopping experience. If you’ve scrolled Instagram or any Reels lately, you know how “sticky” these apps are.

And again, this is the base of 1-2 billion daily active users that will be able to leverage the next Metaverse experiences in social and ecommerce. “I think the software and social platform might be the most critical part of what we’re doing, but software is just a lot less capital intensive to build than the hardware,” Zuckerberg said in February of 2023.

Meta Reality Labs reported $13.7 billion in operating losses for 2022 and lost $16.1 billion in 2023. They expect its operating losses to increase year over year in 2024, but I expect Zuck & Co. to keep investing to eventually leverage Metaverse tools and apps for profits -- just like Apple is experimenting with what comes after the iPhone.

Bottom line on META: The Metaverse is a foot race of titans since the hardware development is so expensive. While AAPL growth stagnates at 6.5 times sales, I think META is a buy here trading 7X sales with 15% topline growth.

Be sure to grab my Metaverse report to find out which other stocks I'm picking in that race.


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