Meta Earnings: Stock Up, but Plenty of Room to Run

Meta Platforms Inc (NASDAQ:) stock surged higher Thursday after the company released its second quarter earnings , which far exceeded what analysts had predicted.

The Magnificent Seven stock generated $39.1 billion in revenue, a 22% increase over the same quarter a year ago. Analysts had anticipated $38.3 billion in revenue. Net income increased a whopping 73% year-over-year to $13.5 billion, or $5.16 per share. This crushed estimates of $4.70 per share.

Meta stock is now up some 48% YTD and 64% over the past 12 months. Among the Magnificent Seven stocks, only NVIDIA (NASDAQ:) has performed better.

Operating margin expands to 38%

It was a strong quarter for the social media giant as most of the key metrics were rising. The number of daily active people (DAP) on its platforms climbed 7% in the June quarter, with an average of 3.3 billion people per day.

CEO Mark Zuckerberg cited progress in boosting the numbers of users in the 18-to-29-year-old range on its platforms. He also called out the growth of Threads, its newest social media site, which already has close to 200 million monthly users.

Also, its ad impressions jumped 10%, as did the average price per ad. Most of Meta’s revenue comes from advertising on its sites, which generated $38.3 billion in revenue, up 22% year-over-year. Its Reality Labs virtual reality Metaverse business made just $353 million, but that was up 28% from the same quarter a year ago.

Further, its costs and expenses rose 7% to $24.2 billion, but its higher-than-anticipated revenue allowed the firm to boost its operating margin significantly to 38%, from 29% in Q2 of 2023.

All in on AI

Meta continues to invest heavily in AI and Zuckerberg sees it as a key growth driver, across the company, not just within the Metaverse.

For example, within advertising, AI will not only help advertisers reach a certain audience; it will be able to generate creative as well.

“Over the long term, advertisers will basically just be able to tell us a business objective and a budget, and we’re going to go do the rest for them,” said Zuckerberg. “I think this is going to be a very big deal.”

Zuckerberg also cited the growth of its Meta AI assistant, which he said is on track to be the most used AI assistant by the end of 2024.

The company also just rolled out AI Studios, which allows people to create their own AIs to interact with across all of Meta’s apps. And it sees great potential in Business AI, which enables businesses to have their own AI capabilities.

“Over time I think that just like every business has a website, a social media presence, and an email address, in the future I think that every business is also going to have an AI agent that their customers can interact with,” Zuckerberg said. “Our goal is to make it easy for every small business, and eventually every business, to pull all of their content and catalog into an AI agent that drives sales and saves them money.”

In its outlook, Meta increased is full year capital expenditures to a range of $37 billion to $40 billion, up from $35 billion to $40 billion, due in large part to spending on AI. In 2025, the company expects significant growth in capital expenditures as it invests in artificial intelligence research and product development efforts.

For the third quarter, Meta anticipates revenue to be in the range of $38.5 billion to $41 billion, up slightly over Q2 at the high end.

For the full-year, expenses are projected to be in the range of $96 billion to $99 billion, which is in line with past guidance. Much of this will be earmarked for AI and product development, particularly within Reality Labs, as it looks to scale up that ecosystem.

Higher AI spending is typically welcomed by investors, as it not only means Meta is investing in its future growth; it also creates growth opportunities for suppliers within the AI universe.

Its growth in advertising and users, as well las its investments in AI, are the chief reasons why Meta stock got a slew of price target upgrades post-earnings.

Most of the major Wall Street firms raised their targets, including Morgan Stanley, Goldman Sachs, Wells Fargo, JPMorgan Chase (NYSE:), Citigroup, Bank of America, Stifel, Barclays, and Piper Sandler, to name a few.

Meta had a price target of $550, but that will move higher after Thursday’s upgrades.

Meta stock has been on fire, but it is still trading at only 24 times earnings, so it still has plenty of room to run. Investors should be looking at this Magnificent Seven stock as a long-term buy and hold.

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