Meta (NASDAQ:META) Exceeds Q3 Expectations But Quarterly Guidance Underwhelms

Petr Huřťák /
2023/10/25 4:38 pm EDT

Social network operator Meta Platforms (NASDAQ:META) reported Q3 FY2023 results exceeding Wall Street analysts' expectations, with revenue up 23.2% year on year to $34.1 billion. However, next quarter's revenue guidance of $38.3 billion was less impressive, coming in 1.6% below analysts' estimates. Turning to EPS, Meta made a GAAP profit of $4.39 per share, improving from its profit of $1.64 per share in the same quarter last year.

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Meta (META) Q3 FY2023 Highlights:

  • Revenue: $34.1 billion vs analyst estimates of $33.5 billion (2.07% beat)
  • EPS: $4.39 vs analyst estimates of $3.63 (21.1% beat)
  • Revenue Guidance for Q4 2023 is $38.3 billion at the midpoint, below analyst estimates of $38.9 billion
  • Free Cash Flow of $13.6 billion, up 24.5% from the previous quarter
  • Gross Margin (GAAP): 81.8%, up from 79.5% in the same quarter last year
  • Family Monthly Active People: 3.96 billion, up 250 million year on year

"We had a good quarter for our community and business," said Mark Zuckerberg, Meta founder and CEO.

Famously founded by Mark Zuckerberg in his Harvard dorm, Meta Platforms (NASDAQ:META) operates a collection of the largest social networks in the world - Facebook, Instagram, WhatsApp, and Messenger, along with its metaverse focused Facebook Reality Labs.

Social Networking

Businesses must meet their customers where they are, which over the past decade has come to mean on social networks. In 2020, users spent over 2.5 hours a day on social networks, a figure that has increased every year since measurement began. As a result, businesses continue to shift their advertising and marketing dollars online.

Sales Growth

Meta's revenue growth over the last three years has been solid, averaging 18.8% annually. This quarter, Meta beat analysts' estimates and reported decent 23.2% year-on-year revenue growth.

Meta Total Revenue

Guidance for the next quarter indicates Meta is expecting revenue to grow 18.9% year on year to $38.3 billion, improving on the 4.47% year-on-year decline it recorded in the same quarter last year. Ahead of the earnings results, analysts covering the company were projecting sales to grow 15.1% over the next 12 months.

While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Usage Growth

As a social network, Meta generates revenue growth by increasing its user base and charging advertisers more for the ads each user is shown.

Over the last two years, Meta's monthly active users, a key performance metric for the company, grew 5.48% annually to 3.96 billion. This growth lags behind the hottest consumer internet apps.

Meta Family Monthly Active People

In Q3, Meta added 250 million monthly active users, translating into 6.74% year-on-year growth.

Key Takeaways from Meta's Q3 Results

Sporting a market capitalization of $804 billion, more than $61.1 billion in cash on hand, and positive free cash flow over the last 12 months, we believe that Meta is attractively positioned to invest in growth.

It was great to see Meta beat analysts' revenue estimates this quarter, driven by better-than-expected monthly active user growth. We were also glad it lowered its operating expense projections, showing the measures it took earlier in the year to increase efficiency are working.

On the other hand, its revenue guidance for next quarter slightly underwhelmed, and it expects higher infrastructure-related costs next year as it increases its investments in servers and data centers (for both AI and non-AI applications). Losses in its AR/VR division, Reality Labs, are also expected to increase meaningfully in 2024. These announcements, however, are nothing new and were already baked into Meta's stock price.

Overall, this was a good quarter for Meta. The stock is up 4.82% after reporting and currently trades at $313.99 per share.

Meta may have had a favorable quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

One way to find opportunities in the market is to watch for generational shifts in the economy. Almost every company is slowly finding itself becoming a technology company and facing cybersecurity risks and as a result, the demand for cloud-native cybersecurity is skyrocketing. This company is leading a massive technological shift in the industry and with revenue growth of 50% year on year and best-in-class SaaS metrics it should definitely be on your radar.

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The author has no position in any of the stocks mentioned in this report.