Meta Platforms (META) – Bullish Note & Some Commentary – April 06, 2024
Jefferies released a note this week on Meta. In it, the firm discussed advertising revenue outgrowing Amazon for the first time in a decade. Amazon’s ad business has been consistently growing at a 20%+ clip for a while. Consensus growth for 2024 is 22.4% Y/Y growth. Advertising is 97% of Meta’s total business. Analysts expect only 17.5% Y/Y total growth for 2024. So? If Jefferies is right (we shall see if they are), there should be some very explosive revenue beats coming for Meta. Those revenue beats will almost surely coincide with profit beats as well.
Meta has now 5Xed from its lows, and I’m still not trimming. While the stock has moved explosively higher, estimates have exploded from the trough as well. At $530 per share today, Meta trades for 26x forward earnings with 35% Y/Y EPS growth expected. These EPS estimates also continue to rise (another 15% year-to-date), which I expect to continue.
It’s difficult to model things like Reels revenue neutrality as that ad form factor revenue headwind vanishes. It’s also hard to model the impact and timing of WhatsApp monetization and its GenAI endeavors. Modeling advertising demand from a macro perspective and cost cutting via layoffs are both more straightforward, but these other items are quite material too. That reality, paired with soaring estimates and Meta’s pristine track record, all leave me confident that it will do even better than $20 in 2024 earnings. I’m confident that analysts are still behind in modeling earnings power for this business. Even if I’m wrong, Meta is expected to compound earnings at a 2-year clip of 25% looking forward. A 1X PEG ratio, without any upside assumed, works just fine for me. I have no intention to trim, even as I sit on hefty profits and even as Meta makes up 13% of my overall holdings.
