Meta Platforms stock was surging on Thursday as Wall Street analysts lined up to applaud its second-quarter earnings. The Facebook and Instagram owner’s growth in short-form videos, strong advertising trends, and growing presence in artificial intelligence all came up as reasons for optimism.
Almost all the analysts evaluating the unexpectedly strong results
Meta
(ticker: META) disclosed Wednesday evening noted the growth of its Reels short-form video format. Plays of videos are exceeding 200 billion a day, the company said in the earnings report.
“Reels monetization continues to display progress, with 75% of all advertisers adopting the new ad unit.,” wrote Mizuho Securities analyst James Lee. “At the same time, AI-powered content-ranking in the feed is driving higher time spent.”
Lee said that Reels appears to be taking market share from TikTok, limiting a competitive threat that had been a major concern for Meta stock. He raised his target price on Meta to $400 from $350, valuing the stock at 11 times the per-share earnings before interest, tax, depreciation and amortization it is expected to achieve in 2025.
Meta shares were up 8.8% in premarket trading on Thursday to $324.88. They had more than doubled this year as of Wednesday’s close.
Artificial intelligence was another key positive, after the recent commercial launch of Meta’s new AI language model, named Llama 2.
“Meta’s considerable AI investments over the past couple years are paying off as AI-generated content drives incremental engagement…Meta highlighted the strongest product platform it’s had in some time, partly fueled by AI,” wrote
J.P. Morgan
analyst Doug Anmuth.
Anmuth pushed his target price for Meta up to $425 from $305 previously, rolling his target period forward 12 months to the end of 2024. Anmuth said the new target was based on a valuation of 18 times Meta’s projected earnings per share for 2025.
The only note of concern sounded by the majority of analysts was around Meta’s continued investment plans. Meta flagged higher depreciation and payroll expenses in 2024 as it shifts hiring to more technical roles after a series of job cuts, as well as increased operating losses from its Reality Labs unit this year.
“Expense creep alongside tougher compares in ‘24E should limit share appreciation from current (peak ‘21) levels,” wrote Benchmark analyst Mark Zgutowicz.
Zgutowicz kept a Hold rating on Meta stock with no target price.
Write to Adam Clark at [email protected]
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