Is Meta Platforms Stock a Buy Now?

Meta Platforms (META -1.65%) posted its third quarter earnings report on Oct. 25. The social media giant's revenue rose 23% year over year to $34.1 billion and exceeded analysts' expectations by $700 million. Its net income jumped 164% to $11.6 billion, or $4.39 per share, and also cleared the consensus forecast by $0.76.

Meta's growth rates were impressive, yet its stock still slumped after the report. Let's review the key numbers to see if that post-earnings dip is a buying opportunity.

Meta Platforms CEO Mark Zuckerberg. Image source: Meta Platforms.

Another quarter of accelerating growth for Meta Platforms

Meta generated 98% of its revenue from its ads in the first nine months of 2023. That core business had suffered three consecutive quarters of year-over-year revenue declines before finally growing again in the first quarter of 2023. Its ad growth then accelerated significantly throughout the second and third quarters of the year.

Data source: Meta Platforms. YOY = Year over year.

Meta attributed that acceleration to three main factors. First, Chinese e-commerce and gaming companies ramped up their ad spending across Meta's platforms to reach more overseas customers. Second, a higher number of total ad impressions offset its lower average prices per ad, which had been reduced by Apple's privacy changes on iOS and its growing mix of lower-revenue overseas users.

During the conference call. CFO Susan Li said Meta's "ongoing improvements to ad targeting and measurement" tools would "drive improved results for advertisers" and eventually stabilize its average prices per ad. However, Li admitted there were "many macro factors at play" which were still "quite hard to predict."

Lastly, Meta's ad business benefited from an easy comparison to the prior year quarter, when it was still grappling with Apple's iOS update, trying to expand Reels to counter ByteDance's TikTok, and struggling to sell more ads in a tough macro environment. Its currency headwinds from last year also turned into tailwinds this year.

Meta's operating margins are soaring

As Meta's growth slowed down last year, it remained firmly committed to burning billions of dollars on its Reality Labs segment, which produces its VR and AR devices. That strategy frustrated many investors because it was crushing its operating margins.

However, the accelerating growth of Meta's higher-margin advertising business and other cost-cutting measures over the past year gradually offset those losses. The Reality Labs unit still racked up an operating loss of $3.7 billion in the third quarter while only generating $210 million in revenue, yet Meta's operating margin still doubled year over year from 20% to 40% -- which represented its highest quarterly operating margin in two years.

Those rising margins indicate Meta can continue to subsidize the expansion of its unprofitable "metaverse" with its core advertising business, in the same way Alphabet subsidizes the expansion of Waymo and its other unprofitable business segments with Google's higher-margin advertising services.

Meta's Family of Apps is still growing

Meta's Family of Apps (Facebook, Messenger, Instagram, and WhatsApp) served 3.14 billion daily active people at the end of the third quarter, which represented 7% growth from a year earlier. Within that total, Facebook's daily active users grew 5% to 2.09 billion.

That consistent growth suggests TikTok and other social media platforms won't render Facebook and Instagram obsolete anytime soon. Meta also expects Reels to widen its moat against TikTok while locking in more users.

During the conference call, CEO Mark Zuckerberg said Reels had already driven a "more than 40% increase in time spent on Instagram" since its launch last February, and that it had become "net neutral" to its total ad revenue growth ahead of schedule. In other words, monetizing Reels -- which had been more difficult to monetize than its News Feed ads -- should no longer throttle the growth of its core advertising business.

Meta gave a sunny outlook for the rest of the year

Meta expects its revenue to rise 13%-24% year over year in the fourth quarter, compared to Wall Street's expectations for 21% growth. It also reduced its full-year forecast for its total expenses from $88-$91 billion to $87-$89 billion, even though it still expects the Reality Labs unit's operating losses to widen year over year in 2023.

For the full year, analysts expect Meta's revenue and EPS to rise 7% and 47%, respectively. For 2024, they expect its revenue and EPS to grow 13% and 24%, respectively, as the macro environment improves.

Those are robust growth rates for a stock that trades at just 18 times forward earnings. So even though Meta's stock has already risen nearly 120% over the past 12 months, I believe it's still a worthwhile investment.