Meta Shares Fall on Higher Spending Plans

Solid first quarter of revenue growth at Facebook and Instagram owner but shares fall on higher spending plans

Michael Hodel, CFA 25 April, 2024 | 1:04PM
Facebook Twitter LinkedIn

Meta Platforms

Meta Platforms is (META) is the latest of the Magnificent Seven stocks to report quarterly earnings. Here's what our analyst thought of the company's update.

Morningstar Metrics for Meta Platforms Stock

• Fair Value Estimate: $400
• Morningstar Rating: 2 stars
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: High

What We Thought of Meta’s Earnings

Meta posted a solid first quarter, with revenue growth and management’s second-quarter outlook, while modestly disappointing relative to FactSet consensus, putting the firm on a path to exceed our 2024 revenue expectations. However, the firm increased its budget for both full-year operating expenses and capital spending, with CEO Mark Zuckerberg convinced that the firm should “invest significantly more in the coming years” into 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’re leaving our fair value estimate at $400 per share. With the selloff following the earnings release, we believe the shares are fairly valued.

Total revenue increased 27% to $36.5 billion during the first quarter, with growth accelerating across geographies. Meta served 3.24 billion daily users across its apps during the quarter, up 7% versus a year ago. The volume of ads delivered increased 20% year on year, indicating continued strong growth in engagement thanks to improving content recommendations, a practical benefit of recent AI investment. Meta indicated that more than 50% of the 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 6% compared with a year ago, with headcount increasing for the second consecutive quarter. The operating margin expanded to 38% from 25% a year ago. Meta now expects operating expenses to total $96 billion-$99 billion this year, raising the low end of the range of its prior forecast from $94 billion. Capital spending is expected in the range of $35 billion-$40 billion, up from $30 billion-$37 billion previously, and the firm again said that it plans to increase spending further in 2025.

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Meta Platforms Inc Class A471.91 USD-0.28Rating

About Author

Michael Hodel, CFA

Michael Hodel, CFA  Michael Hodel, CFA, is director of communications services equity research for Morningstar.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy       Disclosures        Accessibility