• Meta Platforms earnings are out on Thursday after closing bell

• Both earnings and revenue expected to skyrocket

• Stock trades at cheap multiples despite consecutive record highs

Stellar year

Facebook’s parent company, Meta Platforms Inc, was the second-best performing stock of the S&P 500 index in 2023, lagging only behind Nvidia. This outperformance was attributed to positive idiosyncratic and macroeconomic developments, while 2024 could prove to be even better.

On the company-specific front, Meta slashed thousands of jobs in 2023 to improve its operational efficiency and reduce costs, which seems to have not impacted its growth capacity. More importantly though, management’s decision to stop throwing huge amounts of cash into the Metaverse project has been the key turning point. Instead, Meta focused on how artificial intelligence (AI) could improve its core business through user engagement and monetisation.

Without directly selling AI products or services, but through the use of such tools, Meta managed to ride the AI wave and capitalise on what has been the main theme in stock markets. Besides that, Meta largely benefited from the rebound in advertising activity as recession fears melted away and the base case scenario for the US economy shifted to a soft-landing.

What’s next?

Meta has taken the necessary steps to improve its operational efficiency and increase user engagement in its platforms via the use of AI tools. That has led to a significant resurgence in its advertising business, whose revenue is anticipated to have grown by 21% in Q4. Of course, with 2024 being a year packed with elections and major sports events such as the Olympics and European Football Championship, it seems that Meta has the necessary setup to take full advantage of the upcoming wave of ad spending.

However, there are also some risks on the horizon. Meta is in a constant battle with TikTok and Snapchat for the social media platform crown, forcing the firm to continuously invest in new features to stay on top of competition. Meanwhile, its strategic shift towards advertising has proved beneficial so far, but its concentrated business is exposed in the case of a severe downturn in the economy.

Fundamentals improve drastically

Meta’s restructuring has significantly bolstered its profit margins without jeopardizing growth and that’s expected to show up in the Q4 financials. For the last quarter of 2023, forecasts by Refinitiv analysts suggest that revenue is projected at $39.13 billion, which would represent a 21.67% increase on an annual basis. Meanwhile, earnings per share (EPS) are expected to grow by a staggering 181% relative to the same quarter last year, jumping from $1.67 to $4.95.

Cheap relative to the tech clan

Despite the relentless rally in equity markets and particularly in tech stocks, it could be argued that Meta’s shares remain in an attractive territory, considering analysts' growth estimates. The 12-month forward price-to-earnings ratio, which denotes the dollar amount someone would need to invest to receive back one dollar in annual earnings, currently stands at 22.2x. This ratio is way lower than tech-heavy Nasdaq’s average multiple of 26.5x.

Given that Meta’s stock is trading at record highs and its multiples are pretty reasonable, it could be argued that there is still significant upside potential. In any case, even if Meta fails to deliver the anticipated performance, its valuation does not leave much room to the downside.

Consecutive record highs ahead of earnings

Meta has staged a full-scale recovery since its 2022 bottom of $87.20, jumping to consecutive higher highs in the past few sessions. Could Q4 earnings add more fuel to the rally? 

Should earnings surprise to the upside, the stock might extend its series of higher highs and claim the $400 psychological mark. Even higher, further advance could cease at $454, which is the 123.6% Fibonacci projection of the $384-$87.50 downleg.

Alternatively, if earnings reflect some weakness, the price could reverse towards the 2021 peak of $384. A break below that region might pave the way for the 78.6% Fibo of $320.