Yahoo Finance Meta’s Bargain Valuation Makes for Rare Safety Net
(Bloomberg) -- Investors have rewarded Meta Platforms Inc. for its financial discipline this year, as it clamped down on costs. Even so, the social media giant goes into its second-quarter earnings report with a relatively inexpensive valuation that provides a cushion against any minor misses.
Most Read from Bloomberg
Lots of US Homeowners Want to Move. They Just Have Nowhere to Go
Asia’s Richest Families Fuel Race for Lucrative Finance Jobs
US, Europe Are Growing Alarmed by China’s Rush Into Legacy Chips
Stock Traders Refrain From Big Bets After Rally: Markets Wrap
A 5% US Mortgage Rate Is Seen as Tipping Point to Unlock Supply
While Meta shares have more than tripled from a seven-year low in November, the stock has yet to fully recover from the rout triggered by a historic, earnings-induced selloff that wiped out $251 billion in market value in a single session in February last year.
Options data point to a roughly 9.3% swing in either direction after Wednesday’s earnings update, in line with its average move over the last decade. However, Evercore ISI analyst Mark Mahaney said the price tag on Meta’s stock gives it “a lot of downside protection.”
Meta trades at about 20 times projected earnings, lower than its mega-cap technology peers and its own historic average, according to data compiled by Bloomberg. The stock is also much cheaper than the tech-heavy Nasdaq 100 Index, which trades at 26 times. And a 6.8% pullback over the last four trading sessions has also helped ease pressure on the Mark Zuckerberg-led company.
That’s not to say Mahaney rules out the risk of a stock correction. He notes that while Meta’s fundamental trends are materially improving heading into the second half of the year, there could still be a sharp reaction if it disappoints on key figures or surprises the market by amping up costs and Metaverse investments.
A spending splurge would be an about-face for the Menlo Park, California-based company, which has pledged to become a more efficient operation. That’s been accompanied by a push to improve advertising and the addition of generative artificial intelligence layers into its products. Analysts on average expect revenue, which fell for the first time in 2022, to accelerate in every quarter this year, according to estimates tracked by Bloomberg.
Ad Sales
Results Tuesday from Alphabet Inc. bode well for Meta, which derives nearly all its revenue from advertising sales. The Google parent reported second-quarter revenue that exceeded analysts’ expectations, boosted by ads on the company’s flagship search business.
A rebound in demand is key for Meta’s ad business, which has confronted high inflation and increasing competition. Worries about a potential recession have squeezed budgets at small businesses that have in turn had to curtail their online ad spend.
Meanwhile, Meta has been tackling peers head-on by emulating some of their most successful offerings. For instance, Reels, the short-video format that bears a striking resemblance to TikTok. And earlier this month it launched its challenger to Twitter — or X — called Threads. Evercore’s Mahaney has estimated that Threads could generate about $8 billion in annual revenue over next two years and reach close to 200 million daily active users.
Artificial intelligence is another area where analysts see promise. New Street Research upgraded the Facebook parent’s stock to buy from neutral on Tuesday citing positive feedback on the company’s AI efforts.
“Meta management has dismantled every bear case that builds investor skepticism around the stock,” said Tejas Dessai, an analyst at Global X ETFs.
“In terms of catalyst, the digital ads space is on a clear recovery from the slump of the past 12 months and Meta continues to win share,” said Dessai. The stock is the largest holding in the Global X Social Media ETF and easily the fund’s top performing component this year.
Tech Chart of the Day
The AI-driven frenzy has propelled Nvidia Corp. more than 200% higher this year. The stock, which had taken more than 18 years to reach $100 billion in 2017, has zoomed past multiples of that milestone in recent years within a matter of weeks. Four of the last five $100 billion market value additions have taken less than a month, according to data compiled by Bloomberg. Shares of the chip company were trading lower on Wednesday.
Top Tech Stories
Microsoft Corp. posted tepid quarterly sales growth and forecast a continued slowdown in its Azure cloud-services business, overshadowing optimism about customer interest in new artificial intelligence-powered products. The shares dropped almost 4% in late trading.
Google parent Alphabet Inc. reported second-quarter revenue that exceeded analysts’ expectations, boosted by advertising on the company’s flagship search business, which is withstanding new competition from artificial intelligence chatbots.
Snap Inc. projected revenue in the current quarter at the lower end of analysts’ estimates, signaling that improvements to the digital advertising business are taking longer than expected to pay off. The shares fell in extended trading.
SK Hynix Inc.’s quarterly sales beat estimates, with the company declaring the beginnings of a recovery in the memory chip market thanks to surging interest in artificial intelligence.
Texas Instruments Inc., the biggest maker of analog semiconductors, gave a lukewarm earnings forecast for the current period, indicating that a slump in demand for key types of electronics is dragging on.
Earnings Due Wednesday
Premarket
AT&T
Rogers Communications
Amphenol
TE Connectivity
CGI Inc
Teledyne
Check Point Software
Silicon Labs
Postmarket
Meta Platforms
EBay
Imax
ServiceNow
Lam Research
Teradyne
Tyler Tech
PTC Inc.
Flex
Seagate
Pegasystems
Celestica
--With assistance from Tom Contiliano and Ryan Vlastelica.
(Updates to add stock move in Tech Chart of the Day section.)
Most Read from Bloomberg Businessweek
Influencers Built Up This Wellness Startup—Until They Started Getting Sick
AI in Hollywood Has Gone From Contract Sticking Point to Existential Crisis
The Stainless-Steel Boom Is Tearing a South African Mining Region Apart
©2023 Bloomberg L.P.
