META Platforms, Inc. (NASDAQ: META), formerly known as Facebook, has shown remarkable resilience and growth, reflected in its share price appreciation of over 46% year-to-date and an impressive 141% surge in the past 52 weeks.
This exceptional performance can be attributed to various factors, including the company’s aggressive investment in artificial intelligence (AI) research and development, which has positioned it as a frontrunner in innovative technology. Despite facing challenges in 2022, META rebounded strongly in 2023, driven by a recovering digital ad market, increased focus on efficiency, and a renewed emphasis on the potential of the metaverse.
As markets look to the company’s upcoming earnings release on the 24th of April, META’s strategic initiatives and promising outlook continue to attract attention and fuel optimism.
Technical Analysis
META has exhibited exceptional year-to-date share performance, with its stock appreciating by over 46%. This substantial growth outpaces the year-to-date returns of major US indices, notably the Nasdaq 100 Index (purple line), which recorded a 7.62% increase, and the S&P 500 Index (orange line), which saw a 9.07% rise.
META’s significant outperformance against these benchmarks underscores investor confidence in the company’s strategic direction and its position as a leading player in the technology sector.
Source: Trive Financial – Koyfin, Mfanafuthi Mhlongo
Looking at the daily chart shows that META is currently trading near its all-time high of $531.49, supported by a strong bullish run. Despite last session’s 1.53% declines, the share continues to trade well above the upward-sloping 50-SMA (blue line), 100-SMA (orange line) and 200-SMA (red line), with the shorter-term upward-sloping 50-SMA and longer-term 200-SMA trading above the medium-term 100-SMA.
With the RSI (62.00) firmly trading above the 50.00 level, a sustained push higher would leave the all-time high of $531.49 as the initial resistance, with a break likely to bring the 23.60% Fibonacci extension level at $550.10 firmly into play. A break above the initial extension on significant volume would leave the 50.00% Fibonacci extension level ($570.92), a discount of 0.61% from the company’s discounted cash flow estimated fair value of $574.38 (yellow line), within the bulls’ reach in the near term.
However, short-term trading opportunities could arise toward the initial support at $485.47 should the previous session’s selling pressure be sustained. A successful bridge of the initial support on significant volume could trigger a run, with the $453.00 and $406.53 price levels acting as the next significant levels lower.
Fundamental
Despite facing challenges in 2022 due to declining revenue growth caused by factors such as Apple’s privacy changes and overall weakness in the digital advertising market, META Platforms, Inc. (NASDAQ: META) witnessed a significant rebound in 2023. The recovery in the ad market, coupled with businesses increasing their advertising budgets, provided a favourable environment for META as a major player in online advertising. This resurgence is reflected in META’s impressive five-year performance, with total revenue for the quarter ending in September 2019 standing at $17.650 billion and soaring to $40.11 billion by December 2023.
Similarly, the gross profit increased from $14.50 billion to $32.51 billion over the same period. Despite the growth in revenue and profit, there was a marginal decrease in gross profit margin from 82.13% in September 2019 to 81.05% in December 2023, possibly indicating increased competition or shifts in cost structures. Nonetheless, META’s robust financial performance over the past five years underscores its resilience and ability to navigate through challenging market conditions while capitalising on opportunities for growth.
Source: Trive Financial – Koyfin, Mfanafuthi Mhlongo
The company has demonstrated a strategic shift towards enhanced efficiency following the downturn experienced in 2022, implementing significant cost-cutting measures to mitigate adverse impacts. These efforts resulted in a substantial decrease in expenses, bolstering the company’s bottom line and instilling confidence among investors.
Notably, META’s bottom-line performance improved significantly. EBIT margin surged from 20.44% (Sept 2022) to 43.71% (Dec 2023), gross profit rose from 15.86% to 34.95%, and ROE escalated from 14.07% to 37.88%. These figures underscore META’s focus on operational excellence, enhancing profitability and shareholder returns. This significant enhancement in bottom-line performance underscores META’s commitment to operational excellence and value creation for its stakeholders.
Source: Trive Financial – Koyfin, Mfanafuthi Mhlongo
META Platforms, Inc. (NASDAQ: META) demonstrated a keen focus on efficiency in 2023, implementing stringent financial measures such as employee reductions and targeted investments. This drive towards operational streamlining resulted in a notable reduction in expenses, ultimately enhancing META’s profitability. Concurrently, META remained dedicated to advancing its technological capabilities through aggressive investment in artificial intelligence (AI) research and development.
Despite this, the company managed to lower its CAPEX as a percentage of revenues from 33.83% in September 2022 to 19.11% in December 2023, indicating improved cost management. Furthermore, META’s increased R&D expenditure, from $9.17 billion in September 2022 to $10.52 billion in December 2023, underscores its commitment to innovation. This strategic approach, coupled with a substantial rise in cash from operations, demonstrates their ability to invest in the future (AI) without compromising short-term profitability while positioning META favourably for future growth and innovation.
Source: Trive Financial – Koyfin, Mfanafuthi Mhlongo
The company may have been perceived as undervalued by some investors following a significant stock price decline in 2022, potentially sparking bargain-hunting activities and subsequent share price appreciation. Moreover, META’s performance within the Magnificent Seven over the past year has been noteworthy, with its share value surging by 140.28%, outpacing several major tech players such as Amazon, Microsoft, Alphabet, and Apple. Although trailing behind NVIDIA’s remarkable 222.27% surge, META’s strong rebound suggests growing investor confidence and highlights its potential for substantial growth in the evolving tech landscape.
Source: Trive Financial – Koyfin, Mfanafuthi Mhlongo
Markets anticipate continued positive performance for META in the upcoming earnings season, with the company poised to release its quarterly earnings report on the 24th of April 2024. The company’s strong free cash flow growth suggests it could potentially surpass Apple’s market cap in the next decade, driven by its focus on innovation and strategic investments.
Summary
META’s recent surge reflects a combination of a recovering advertising market, improved financial performance, and excitement about its future growth prospects in AI and the metaverse. While the stock is currently trading near all-time highs, the upcoming earnings report suggests that there is a potential for further upside, while disappointing results could trigger a sell-off to lower levels.
Sources: TradingView, Trading Economics, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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