Despite the stock's latest 10% dip, Meta Platforms (META 0.16%) reported another superb quarter. Revenue rose 27%, demonstrating an ongoing ad market recovery. Diluted earnings per share surged 114%, indicating just how profitable this company is and how well its push for efficiency is going.
This unstoppable social media stock currently trades at a forward P/E ratio of 22. This might encourage you to want to buy shares. If so, it's best to pay attention to these two important statistics.
Heading in the right direction
The first metric investors need to know is that Meta currently has 3.2 billion daily active users across its apps, which include Facebook, Instagram, WhatsApp, and Messenger. This figure was up 7% year over year. And it represented a sizable 108% gain from five years ago. Even though 40% of the world's 8.1 billion people interact with a Meta service every 24 hours, there appears to still be growth potential.
By constantly introducing new features, Meta is better able to draw in more users while getting its existing users to spend more time on the various apps. CEO Mark Zuckerberg specifically called out the strength of WhatsApp in the U.S. That's a good sign.
The second number shareholders must pay attention to is monetization, as measured by average revenue per user (ARPU). This figure came in at $11.20 in Q1, an increase of 18% from the year-ago period. Growth is fastest outside of the U.S., Canada, Europe, and Asia-Pacific regions.
Just because the business can grow its user base doesn't mean much if it can't find ways of making money from them. Outside of Alphabet, there is perhaps no company in the world that can target audiences as well as Meta.
With the introduction of artificial intelligence capabilities, Meta is hoping to better serve its advertising customers with new tools and features that can make their jobs more efficient. The hope is that more spending comes over to Meta over time, pushing that ARPU up.
By growing its user base and the ARPU, Meta's revenue base is undoubtedly going to be higher over time. And that's a clear indication that the company is still dominating the social media and digital ad markets.
Unrivaled network effects
Those two key metrics point to Meta's most critical competitive advantage: network effects. I believe this favorable characteristic will drive the company's success over the long term.
Because the business already has such a massive user base, it becomes incredibly easy to bring on another person. There are unlimited connections to be made as well as content to watch.
Additionally, the fact that Meta is able to extract more value in the form of ARPU is a sign that its paying customers, advertisers, continue to find more value directing their marketing dollars to the platform versus to competitors.
Once the company's user base stops posting healthy growth, investors should start to be a bit more cautious. And if ARPU begins to decline, investors might also have reason to worry.
This would possibly be an indication that Meta's moat is starting to erode. There could be competing social networks drawing more users who spend more time on their apps. Maybe another advertising channel is seeing a better return on investment.
Luckily, though, it appears as though Meta's operations are rock solid right now. But prospective shareholders should certainly get familiar with and pay attention to those two numbers going forward to assess the health of the business.
