Facebook and Instagram parent Meta Platforms (META 0.55%) experienced incredible share-price gains over the past year. Last August, the stock was at a 52-week low of $274.38, but in July of this year, it had nearly doubled to a high of $542.81.
But unlike many tech stocks benefiting from the fervor around artificial intelligence (AI), Meta's stock price rise was primarily driven by its outsized success in digital advertising. The industry experienced an upswing in 2023 as spending on digital ads shot up 12% year over year, driving revenue growth for Meta.
Now, the company's share price has pulled back from its high along with the broader stock market's recent decline. Does this dip create a buy opportunity? Here's a look at Meta to answer that question.
NASDAQ: META
Key Data Points
Meta's financial strength
The digital-advertising industry's expansion over the past year was a particularly important tailwind for Meta. That's because the social media giant's commanding 18% share of this market is second only to Google owner Alphabet. The next closest competitor holds a 7% share.
Meta's digital ad-market dominance led to second-quarter revenue rising 22% year over year to $39.1 billion. That's just the start of its excellent Q2 financials.
The company's Q2 balance sheet was incredibly strong. Total assets were $230.2 billion compared to total liabilities of $73.5 billion.
In addition, Meta exited Q2 with an abundance of cash. Its cash, cash equivalents, and marketable securities totaled $58.1 billion. Its Q2 free cash flow (FCF) was $10.9 billion, which easily covered Q2 dividend payments of $1.3 billion, leaving plenty remaining for Meta to invest in its business, pay down debt, and repurchase shares.
The company also achieved a 73% year-over-year increase in net income to $13.5 billion thanks to its revenue growth combined with a judicious approach to managing costs. This helped Meta's diluted earnings per share (EPS) to increase 73% to $5.16 from 2023's $2.98.
Meta's tech investments
Managing its expenses was an important factor in Meta's ability to grow EPS. CFO Susan Li explained the company's plan to control costs by keeping a tight rein on hiring, stating, "[W]e are really trying to be very disciplined and ruthless about the way we are prioritizing in here, in part because it allows us to invest in infrastructure, which is just such a critical part of our AI ambitions right now."
Her comment about investing in infrastructure points to Meta's strategy to grow its business through the twin technologies of artificial intelligence and the metaverse, the latter for which Meta is named.
Its AI investments are already paying off. According to CEO Mark Zuckerberg, the company's Meta AI digital assistant is on track to become "the most used AI assistant by the end of the year."
As for its metaverse investments, Meta's latest generation of smart glasses is infused with AI, and they're selling well since launching last year. Zuckerberg stated, "Demand is still outpacing our ability to build them."
Despite this success, Meta's metaverse ambitions are a long way from delivering meaningful revenue. Of its $39.1 billion in Q2 sales, 98% came from advertising.
To buy or not to buy Meta stock
Meta is poised to thrive over the coming years. Digital-ad spending is expected to continue 2023's double-digit increase this year and extend into the next few years as well.
As a result, the current consensus among Wall Street analysts is a "buy" rating with a median share price of $570 for Meta stock. This suggests a belief that shares can increase from their current price.
With the digital-ad industry positioned for multiyear growth ahead, and its early success in AI and the metaverse, Meta looks like a worthwhile long-term investment.
