Meta Platforms on Wednesday evening delivered a monster quarterly beat on everything from sales and earnings to cash flow and engagement. Revenue in the fourth quarter rose over 20% year over year to $48.4 billion, outpacing the $47 billion consensus estimate compiled by LSEG. Earnings per share in the three months ended Dec. 31 surged more than 50% to $8.02, crushing the LSEG’s consensus estimate of $4.25. Shares of the Facebook and Instagram parent rose in after-hours trading following their fifth straight record high close. In fact, the stock bucked a down market and extended its winning streak to eight sessions in a row. META 1Y mountain Meta Platforms 1 year Meta was able to keep rolling through the market turmoil this week created by news that Chinese startup DeepSeek was able to create a highly efficient, lower-cost artificial intelligence model. In reiterating Friday’s capital expenditure guidance, Meta answered the big question we had about whether CEO Mark Zuckerberg would revise that figure following Monday’s DeepSeek revelations. On the call, he said, “It’s probably too early to really have a strong opinion on what this [DeepSeek news] means for the trajectory around infrastructure and capex and things like that. There are a bunch of trends that are happening here all at once.” Bottom line By about five minutes into Zuckerberg’s prepared remarks, one thing was made perfectly clear: The fierce intensity he’s picked up in the octagon has made its way to the boardroom. “This is going to be a really big year. I know it always feels like every year is a big year, but more than usual, it feels like the trajectory for most of our long-term initiatives is going to be a lot clearer by the end of this year,” Zuckerberg said on the post-earnings conference call. “I keep telling our teams that this is going to be intense because we have about 48 weeks to get on the trajectory that we want to be on. I expect that this is going to be the year when a highly intelligent and personalized AI assistant reaches more than 1 billion people, and I expect Meta AI to be that leading AI assistant.” Meta Platforms Why we own it : We value Meta Platforms for its targeted advertising dominance. Deep user engagement also creates a flywheel effect between users and content producers/marketplace sellers. The company’s scale provides the financial power and employee talent needed to ensure new growth avenues such as artificial intelligence, the metaverse, and virtual and augmented reality projects. We like management’s intense focus on cost controls. Competitors : Alphabet , TikTok (owned by China’s ByteDance) and Snap Weight in portfolio : 4.91% Most recent buy : Sept. 6, 2022 Initiated : May 29, 2014 While sales guidance for the current fiscal 2025 first quarter was short versus expectations, the Street is looking past it and betting that Meta has positioned itself to be a leading player in this next generation of AI-defined computing. Meta has a knack of making monstrous investments with a clear line of sight to near-term returns without sacrificing the longer-term opportunities of widespread AI adoption. That was the case in 2024 and appears Zuckerberg’s goal this year, too. “While we are not providing a full-year 2025 revenue outlook, we expect the investments we’re making in our core business this year will give us an opportunity to continue delivering strong revenue growth throughout 2025.” Focusing on the first quarter revenue guidance would be to miss the forest for the trees and given the after-hours price action, it appears that investors are finally starting to understand this. We are increasing our price target to $750 per share $650. However, we’re reiterating our 2 rating as we look for a pullback before advising members to buy. It’s not in our nature to chase the kind of hot streak that Meta’s stock has been on for the past two weeks. Commentary Talk about a blowout. Anytime a 20% increase in sales results in a 50% increase on the bottom line, you know management is laser-focused on efficiency and leaving no stone unturned to cut anything deemed unnecessary. What exactly does that look like? Consider this. Two years ago, right before what will forever be known as the “Year of Efficiency,” Meta spent 10% of revenue on general and administrative expenses, 14% on marketing and sales, 30% on research and development, and 26% on cost of revenue. Roughly a year later, in the third quarter of 2023, that fell to 6%, 8%, 26% and 19%, respectively. With this release, management said expenses have now fallen to 2%, 7%, 25%, and 18% of revenue, respectively. All the while, daily active people on the company’s Family of Apps has increased sequentially in every quarter since the end of 2022. That is what execution looks like. That is a management team you do not bet against. Family of Apps, where we find results from Facebook, Instagram, WhatsApp, Messenger, and Threads, delivered strong fourth quarter 2024 sales and profit, benefiting from better-than-expected engagement from a higher-than-expected user base. Meta also generated more average revenue per person than expected across its Family of Apps. On the other side of the house, Reality Labs, which houses Meta’s virtual and augmented reality headsets and its metaverse efforts, sales were largely in line with expectations. While the unit’s operating loss did increase slightly year over year, it came in almost $1 billion below expectations. Cash flow was superb, with CFO Susan Li saying on the call, “We expect our strong financial position will enable us to support investments in the business while continuing to return capital to shareholders through share repurchases and dividends.” During the quarter, provided Meta Platforms paid out $1.3 billion in dividends, however, did not repurchase any shares Guidance Taking a closer look at guidance, Meta expects first-quarter 2025 revenue to be in the range of $39.5 to $41.8 billion, which at the $40.65 billion midpoint, is below the $41.7 billion the Street was looking for, according to LSEG. The team did not provide a full-year revenue estimate but did guide total expenses to be in a range of $114 billion to $119 billion, with infrastructure-related costs — operating expenses and depreciation — the primary driver of the year-over-year increase versus 2024. While appearing to be above the $110.5 billion the Street was looking for, analysts have not yet adjusted their models for Zuckerberg’s capital expenditures forecast that he preannounced last week. Regarding capital expenditures, the team reiterated the $60 billion to $65 billion full-year guide provided this past Friday. We aren’t comparing that to estimates as the Street has not yet updated estimates. That said, it should be noted that prior to the announcement, analysts were modeling capital expenditures at about $52 billion. The question becomes whether those capex dollars go to buying the best and fastest Nvidia AI chips, which has been the case in recent quarters, or whether Meta can spend less with Nvidia and put the capex towards other parts of its business. The stocks of Nvidia and fellow Club chipmaker Broadcom have been the biggest casualties of the emergence of DeepSeek. The year-over-year capital expenditures growth will be driven primarily “by increased investment to support both our generative AI efforts and core business,” the team noted on the release, adding that the majority of that money will be directed to the core business. (Jim Cramer’s Charitable Trust is long META, NVDA, AVGO. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. 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Meta CEO Mark Zuckerberg makes a keynote speech during the Meta Connect annual event, at the company’s headquarters in Menlo Park, California, on Sept. 25, 2024.
Manuel Orbegozo | Reuters
Meta Platforms on Wednesday evening delivered a monster quarterly beat on everything from sales and earnings to cash flow and engagement.