What happened
Week to date, shares of Meta Platforms (META 8.49%) were up 12%, according to data provided by S&P Global Market Intelligence. The social media giant reported better revenue and profits than expected in the first quarter. Management also reported good progress on initiatives to improve efficiency and investments in artificial intelligence (AI).
AI has become the new buzzword on Wall Street, and Meta is clearly seen as a key player in the space. Even with lower profits over the last year due to higher costs, the company still generates ample free cash flow to invest in growth initiatives.
Image source: Getty Images.
So what
On the earnings call, CEO Mark Zuckerberg spoke a lot about the company's AI investments, noting "a huge AI wave" in the company's roadmap. While Meta continues work on building the metaverse, Zuckerberg called out improving content recommendations in feeds and Reels in its apps.
Perhaps most important is how AI will improve Meta's advertising business, which investors view as a key long-term growth catalyst. On this front, Zuckerberg mentioned that Reels monetization efficiency is up over 30% on Instagram and over 40% on Facebook compared to the previous quarter.
NASDAQ: META
Key Data Points
Now what
The stock has soared 98% year to date, but in the near term, it's difficult to see much more upside. Using this year's consensus earnings estimate, the stock is trading at 24 times earnings, which already prices in higher growth expectations. This is despite Meta's revenue only growing 3% year over year in the first quarter, with earnings per share (EPS) down 19%.
Long term, Meta is still in a strong competitive position to deliver returns to investors. It's a good sign that daily active users across its family of apps were up 5% year over year to 3.02 billion in the quarter.
