Meta Platforms’ (NASDAQ:META) second-quarter financial results showed that the company remains a leading contender in the global artificial intelligence race. Now is a great time to buy-the-dip in META stock with its share price down 12% since the beginning of July.
The company’s Q2 print was very strong, driven by a continued rebound in online advertising across its social media platforms that include Facebook and Instagram.
The latest earnings report also showed that Meta is making strides in its quest to become a leading AI company even as it controls costs and improves margins.
The bottom line is that Meta Platforms is a technology stock at the top of its game.
A Strong Q2 Print
Meta Platforms had arguably the strongest Q2 print so far among the megacap technology companies, topping Wall Street forecasts across the board.
The company announced EPS $5.16, which beat consensus estimates that called for $4.73. The profit was up an impressive 73% from a year earlier.
Revenue in the April through June quarter totaled $39.07 billion, which was ahead of the $38.31 billion that had been expected.
Meta’s Q2 sales were up 22% from a year earlier, marking the fourth consecutive quarter of sales growth in excess of 20%.
The strong results were attributed to a rise in the company’s core digital advertising business. Ad revenue across Meta Platform’s social media sites that also include WhatsApp rose 22% from a year earlier.
The company reported having 3.27 billion daily active people on its social media platforms and was able to charge a 10% higher average price per advertisement than a year go.
Cost Controls
Meta’s financial performance continues to get a boost from aggressive cost-cutting measures being undertaken across the company.
Since the pandemic ended in late 2022, Meta has cut 21,000 jobs over multiple rounds of layoffs. Consequently, Meta’s operating margin has grown to 38% from 29% a year ago.
If there’s an area of concern at Meta Platforms, it is with the company’s continued spending on technological innovations, especially AI.
Meta continues to spend heavily on AI and other cutting-edge technologies, as well as data center infrastructure and computing resources.
Meta has said that its expense outlook for the year remains unchanged at $96 billion to $99 billion.
While there’s no question the company’s capital expenditures are huge, management says they are necessary to keep Meta at the head of the pack in the AI race.
The company is managing to offset those heavy expenditures through cost reductions in other parts of its business.
A Decent Valuation
Meta stock is currently trading at 24 times future earnings estimates.
That amount is in line with the average price-earnings ratio of stocks listed in the benchmark S&P 500 index and cheap for a technology company with a market cap of more than $1 trillion.
However, analysts are currently reevaluating their outlook and multiple for META stock and lowering the valuation further.
Analysts at Bank of America (NYSE:BAC) have raised their estimate of this year’s earnings to $24.43 and lowered their valuation on the stock to 21 times that number.
Meta stock currently has the cheapest valuation among the Magnificent 7 megacap technology stocks along with Alphabet (NASDAQ:GOOG; NASDAQ:GOOGL). Analysts remain extremely bullish on META stock and its outlook.
Currently, there is a consensus “strong buy” rating on the company’s shares among 28 Wall Street analysts, with a median price target that is 15% above current levels.
Buy META Stock
Investors would be wise to either take a new position in Meta stock amid the current market downturn or add to an existing position.
The company’s Q2 financial results show a company that is firing on all cylinders, controlling costs, and growing its presence in the AI space. If that weren’t enough, the share price is trading at a fair valuation and below the multiple on competing megacap tech stocks.
Analysts up-and-down Wall Street remain bullish on the company and its prospects. Meta stock is a buy.
On the date of publication, Joel Baglole held a long position in GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.
