Friday, February 23, 2024
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META Stock Analysis: Why Meta Platforms Is Still a Top Growth Play

No Meta Platforms (NASDAQ:META) stock analysis would be complete without sharing the company’s big news. Besides stellar financial results for the fourth quarter of 2023 it announced its first ever dividend.

META stock is up 14% on news that it will pay shareholders a quarterly dividend of 50 cents a share beginning on March 26 of this year. It’s the first ever dividend payment from Meta Platforms and comes after the company’s cash reserves grew to $65.40 billion at the end of 2023 from $40.70 billion a year earlier. Meta also announced a $50 billion share buyback program.

How the Dividend Affects This META Stock Analysis

The dividend was announced alongside exceptional Q4 2023 results that saw Meta report earnings per share of $5.33 versus $4.96 that had been expected on Wall Street.

Revenue in the quarter came in at $40.10 billion compared to $39.18 billion that was forecast by analysts. The guidance was also better-than-expected, with Meta saying it expects sales in the current first quarter of $34.50 billion to $37 billion, topping estimates of $33.80 billion.

The solid earnings beat and new dividend payment are just the latest signs that Meta Platforms remains a top growth play. META stock is now up more than 300% from a bottom it reached in November 2022.

AI Ambitions

While Meta Platforms might not be the first name that comes to mind when investors think of AI, it is a leading player in the space and has jumped into the realm of artificial intelligence with both feet.

Company CEO Mark Zuckerberg recently wrote on social media: “Our long-term vision is to build general intelligence, open source it responsibly, and make it widely available so everyone can benefit.”

Zuckerberg made those comments after Meta Platforms announced its intention to spend billions of dollars this year buying microchips from Nvidia (NASDAQ:NVDA) that power its various AI applications.

Estimates are that Meta could spend upwards of $9 billion this year acquiring 350,000 Nvidia H100 graphics processing units and 600,000 H100 computer equivalent GPUs. Graphics processing units effectively run the computations needed for AI projects and demand for them is red hot currently.

Meta has also announced plans to make custom-made microchips to power AI on video-processing platforms.

The parent company of social media sites Facebook and WhatsApp has said that its goal is to develop a microchip that can process and deliver four billion videos a day to consumers.

It is also developing AI chips to power the algorithms used to show content and ads in people’s news feeds on Facebook and other social media sites. The company’s also developing chips to train AI models.

Meta has pivoted aggressively to focus on artificial intelligence following the release of chatbots and AI models such as GPT-4.

Meta has even announced that it’s developing a supercomputer called “Research SuperCluster” that can train generative AI platforms and large language learning models.

Advertising Rebound

While AI might be the future at Meta Platforms, online advertising is still the company’s main revenue stream. Like other social media and internet companies, Meta suffered from a drop in online advertising coming out of the pandemic as businesses rationalized their budgets.

But there are signs that a turnaround is underway. In its just released earnings print, Meta said that its revenue rose 25% from a year earlier, the fastest growth rate since mid-2021, as the online ad market continues to recover. 

Specifically, Meta executives said that they are seeing faster growth in the company’s digital ad business following a difficult 2022 when advertising revenue across its social media sites declined for three consecutive quarters.

Expectations are for further ad growth this year, especially with a presidential election campaign underway.

Research firm Insider Intelligence forecasts that political advertising will rise by 30% this year from the previous 2020 presidential election year and reach $12.32 billion. What’s more, digital platforms are expected to see a massive increase of 156% spent on ads run across social media sites such as Facebook and YouTube.

Other Stuff

Beyond its pivot to AI and a recovery in its core digital advertising business, Meta Platforms has several other products to help the company diversify and continue growing throughout 2024 and beyond.

Last fall at its annual developer’s conference, Meta Platforms rolled out a host of new products that got consumers, analysts, and the media excited. These included a new virtual reality headset and several AI-related consumer products.

The Quest 3 virtual reality headset was launched last October in time for the holidays and beat Apple’s (NASDAQ:AAPL) competing headset, the Vision Pro, to market by nearly six months.

Priced at $499, Meta’s Quest 3 headset is much more affordable than Apple’s Vision Pro, which costs $3,500 to buy. Plus, the Quest 3 headset supports video games from Microsoft’s (NASDAQ:MSFT) Xbox unit. Meta also unveiled Ray-Ban mixed reality sunglasses that can capture photos and videos with a voice command.

As for the AI consumer products that Meta Platforms plans to monetize, they include a text-to-image platform called “Emu” that will be integrated with the company’s Messenger app, and an AI photo editing tool for Instagram.

Meta is also launching “AI Studio,” a platform that enables developers to build their own AI chatbots such as ChatGPT. Taken together, the new consumer products should help to drive growth at Meta Platforms as the company continues to diversify.

Buy META Stock

Meta Platforms went through some difficult times in recent years. The company faced criticism for metaverse spending, rebranded, suffered in digital ad business, and experienced a share price decline in 2022.

Meta Platforms has emerged stronger with a new focus on AI, rebounding ad business, and new products. While the share price has run far, there are likely more gains ahead. And now there’s a dividend payment too. META stock is a buy.

On the date of publication, Joel Baglole held long positions in MSFT, NVDA and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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