Earnings Season Preview: Here’s What Matters For Meta

Earnings Season Preview: Here’s What Matters For Meta
Paul Allison, CFA

27 days ago1 min

Mentioned in story

The Facebook parent’s metamorphosis from a social media platform for olds, wasting billions chasing a metaverse dream, to a lean, mean, AI machine ended with the share price climbing back to new all-time highs. The results have generally matched that share price rise, too, with advertising growth recovering to an impressive 20% in the third quarter, and profit margins almost doubling to more than 50%.

Recently, Meta’s CEO has been hinting about loosening some purse strings, with the firm snapping up high-powered chips and aiming to get itself in among the AI elite. So investors won’t be expecting anything like another doubling of margins (which would be mathematically impossible from this level, of course), but they would hope for steady progress from here. The firm’s record earnings before interest and tax (EBIT) margin was 56%, incidentally, reached back in the fourth quarter of 2017.

From a revenue perspective, it’s unlikely that the third quarter’s 22% growth will be repeated, but investors will want to see healthy revenue growth in the mid-teens (or better), as further proof that the firm’s initiatives – think: reels – are holding their own in the face of fierce competition from TikTok.

Meta is the least expensive of all the Magnificent Seven firms, with a price-to-earnings (P/E) ratio of just 22x – so continued financial performance momentum could see that valuation expand.

Meta’s forward price-to-earnings (P/E) ratio, over time. Source: Koyfin.
Meta’s forward price-to-earnings (P/E) ratio, over time. Source: Koyfin.

–Meta is expected to announce earnings on Thursday, February 1st, after the close of trading.

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