{"id":78037,"date":"2023-10-29T01:54:00","date_gmt":"2023-10-29T05:54:00","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/meta-q3-an-explosion-of-growth-nasdaqmeta\/"},"modified":"2023-10-29T01:54:11","modified_gmt":"2023-10-29T05:54:11","slug":"meta-q3-an-explosion-of-growth-nasdaqmeta","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=78037","title":{"rendered":"Meta Q3: An Explosion Of Growth (NASDAQ:META)"},"content":{"rendered":"
\n

<\/picture>
<\/figcaption><\/figure>\n<\/p>\n

Shares of Meta Platforms (NASDAQ:META<\/span>) fell 4% yesterday after the firm submitted a much better-than-expected earnings sheet for the third quarter. Meta Platforms, which last year suffered immensely due to a slowdown in ad spend on the social media platform, is seeing an impressive return of advertising spending, resulting in impressive revenue, free cash flow, and earnings gains. Meta Platforms generated a nearly 40% free cash flow margin, posted strong user gains, and submitted a very robust outlook for Q4’23 as well. META is still trading above the 1-year average P\/E ratio, however, and I am holding out for a lower valuation level that I am more comfortable with before buying!<\/span><\/p>\n

\n

\"Chart\"
Data by YCharts<\/figcaption><\/figure>\n<\/p>\n

Rating profile<\/h2>\n

My last rating on Meta Platforms (from August 2023) was hold because the advertising business showed promise of a rebound, but shares appeared expensive at the time, <\/span>Meta: Wait For A Drop Before Buying. With top line growth accelerating and free cash flow surging, I believe the risk profile has improved. My rating, due to valuation reasons, remains unchanged at hold, however.<\/span><\/p>\n

Q3\u201923 earnings results beat estimates by a wide margin<\/strong><\/h2>\n

Meta Platforms reported much better than expected results on both the top and the bottom line thanks to an acceleration of digital advertising spending on its social media platforms: Meta Platforms reported revenues of $34.15B (consensus: $33.5B). Adjusted EPS came in $0.75 per share better than the consensus EPS estimate of $4.39.<\/p>\n

\n

\"Source:<\/span>
\n

Source: Seeking Alpha<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Accelerating strength in digital advertising<\/strong><\/h2>\n

The strength of Meta Platforms’ third-quarter earnings release was driven chiefly by a return of advertising dollars to the social media platform. The social media firm saw a massive reacceleration of growth in Q3\u201923 as its top line soared 23% year over year to $34.1B. Meta Platforms reported an 11% year-over-year top line growth in the second quarter, so the growth acceleration is quite significant.<\/p>\n

The revenue trend in Meta Platforms’ core advertising is favorable, but it isn’t in Realty Labs, which includes the firm\u2019s metaverse projects. This segment continued to see revenue declines: Reality Labs generated just $210M in revenues in Q3\u201923, showing the third consecutive top line decline.<\/p>\n

\n

<\/picture><\/span>\"Source:<\/span>
\n

Source: Meta Platforms<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Meta’s revenue, free cash flow and earnings surge in the third quarter has not only been driven by a return of advertising dollars to the social media company but implicitly also by a continual expansion of Meta Platforms\u2019 user base.<\/p>\n

At the end of the September quarter, Facebook had 2,085M users on its platform, meaning the social media company added 21M users just in the third quarter. In total, Meta Platforms\u2019 Facebook daily active users, a key figure for measuring the relevance of an ad platform for advertisers, increased by 101M since the third quarter of last year.<\/p>\n

\n

<\/picture><\/span>\"Source:<\/span>
\n

Source: Meta Platforms<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

In my opinion, Meta Platforms is proving to investors (and advertisers) that its ad platform can still generate growth, despite new rivals — like TikTok — popping up on the scene.<\/p>\n

Meta Platforms has launched its own version of TikTok, “Instagram Reels”, and YouTube launched YouTube Shorts in 2020 to cash in on growing demand for short-form video content. TikTok, however, is a considerable force in the market, extremely popular with young users… and the company is projected to see massive top line growth in the next several years.<\/p>\n

\n

\"Source: <\/picture>
\n

Source: Insider Intelligence<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Given the large size of Meta’s social media platforms, however, and considering that Facebook continues to grow its DAUs, I believe Meta Platforms will remain one of the most relevant advertising platforms for the foreseeable future.<\/p>\n

\n

\"Source:<\/span> <\/picture>
\n

Source: Meltwater<\/span><\/p>\n<\/figcaption><\/figure>\n<\/p>\n

Free cash flow is soaring, margins are expanding on strong spending<\/strong><\/h2>\n

Meta Platforms achieved $13.6B in free cash flow on $34.1B in revenues which calculates to a stunning free cash flow margin of 40%. The margin was even better than the FCF margin posted by Google which soared to 30% in Q3\u201923: Why Google Is A Bargain After Q3.<\/p>\n

Year over year, the rebound in free cash flow was driven by a number of factors including a cutback in investment spending (on metaverse projects), strengthening advertising spending across apps as well as a 5%-expansion in Meta Platforms\u2019 user base.<\/p>\n

<\/span><\/p>\n\n\n\n\n\n\n\n\n
\n

in mil $<\/p>\n<\/td>\n

\n

Q3’22<\/p>\n<\/td>\n

\n

Q4’22<\/p>\n<\/td>\n

\n

Q1’23<\/p>\n<\/td>\n

\n

Q2’23<\/p>\n<\/td>\n

\n

Q3’23<\/p>\n<\/td>\n

\n

Y\/Y Growth<\/p>\n<\/td>\n<\/tr>\n

\n

Revenues<\/p>\n<\/td>\n

\n

$27,714<\/p>\n<\/td>\n

\n

$32,165<\/p>\n<\/td>\n

\n

$28,645<\/p>\n<\/td>\n

\n

$31,999<\/p>\n<\/td>\n

\n

$34,146<\/p>\n<\/td>\n

\n

23.2%<\/p>\n<\/td>\n<\/tr>\n

\n

Operating Cash Flow<\/p>\n<\/td>\n

\n

$9,691<\/p>\n<\/td>\n

\n

$14,511<\/p>\n<\/td>\n

\n

$13,998<\/p>\n<\/td>\n

\n

$17,309<\/p>\n<\/td>\n

\n

$20,402<\/p>\n<\/td>\n

\n

110.5%<\/p>\n<\/td>\n<\/tr>\n

\n

Purchases of Property\/Equipment<\/p>\n<\/td>\n

\n

($9,355)<\/p>\n<\/td>\n

\n

($8,988)<\/p>\n<\/td>\n

\n

($6,823)<\/p>\n<\/td>\n

\n

($6,134)<\/p>\n<\/td>\n

\n

($6,496)<\/p>\n<\/td>\n

\n

-30.6%<\/p>\n<\/td>\n<\/tr>\n

\n

Payments on Finance Leases<\/p>\n<\/td>\n

\n

($163)<\/p>\n<\/td>\n

\n

($235)<\/p>\n<\/td>\n

\n

($264)<\/p>\n<\/td>\n

\n

($220)<\/p>\n<\/td>\n

\n

($267)<\/p>\n<\/td>\n

\n

63.8%<\/p>\n<\/td>\n<\/tr>\n

\n

Free Cash Flow<\/strong><\/p>\n<\/td>\n

\n

$173<\/strong><\/p>\n<\/td>\n

\n

$5,288<\/strong><\/p>\n<\/td>\n

\n

$6,911<\/strong><\/p>\n<\/td>\n

\n

$10,955<\/strong><\/p>\n<\/td>\n

\n

$13,639<\/strong><\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n<\/tr>\n

\n

Free Cash Flow Margin<\/strong><\/p>\n<\/td>\n

\n

0.6%<\/strong><\/p>\n<\/td>\n

\n

16.4%<\/strong><\/p>\n<\/td>\n

\n

24.1%<\/strong><\/p>\n<\/td>\n

\n

34.2%<\/strong><\/p>\n<\/td>\n

\n

39.9%<\/strong><\/p>\n<\/td>\n

\n

–<\/p>\n<\/td>\n<\/tr>\n<\/table>\n

<\/span><\/span>