The stock of Meta experienced a significant surge of nearly 10% on Thursday, driven by a positive revenue forecast. This forecast demonstrated that the implementation of artificial intelligence has helped the social media giant enhance user engagement and increase ad sales, even in an uncertain economic climate.
The owner of Facebook is projected to add more than $70 billion to its market value based on premarket movements. This boost comes after a strong second-quarter earnings report, which led 16 analysts to raise their target price for the stock. It’s worth noting that Meta’s stock has already more than doubled in value this year.
Mark Shmulik of Bernstein commented, “Meta is in a class of their own in the digital ads space.” He further stated that the company’s “monster guidance blew the doors off with an expected growth rate of +15-24% – numbers investors were hoping to maybe see as early as Q4.”
While Meta’s second-quarter ad revenue increased by 12%, surpassing the three percent growth seen at Google (a subsidiary of Alphabet), both companies’ earnings reports confirmed a recovery in the digital advertising sector.
Meta and Google are on track to witness a combined increase of more than $170 billion in their market capitalization. This is greater than the individual market values of approximately 90% of the companies listed in the S&P 500 index.
However, smaller rival Snap reported disappointing ad sales, potentially due to advertisers sticking to more established platforms.
Meta’s positive results were boosted by the improving monetization of Reels, a short-form video format created as the company’s alternative to TikTok. According to CEO Mark Zuckerberg, Reels now generates an annual revenue of over $10 billion, compared to $3 billion last fall.
“Advertisers are gaining confidence in Meta’s enhanced and AI-powered campaign planning and measurement capabilities and are spending more. Unsurprisingly, Reels monetization keeps improving,” stated Morningstar analyst Ali Mogharabi.
This positive analysis reinforces the notion that Meta has become a favorite on Wall Street this year. The company’s focus on cost reduction and increased user engagement through AI has overshadowed the skepticism it faced in 2022 due to its significant spending on the ambitious metaverse project.
Analysts have a median price target of $342.50 on Meta, representing a 15% upside from its last closing price. The company’s 12-month forward price-to-earnings ratio stands at 21.28, higher than Alphabet’s (Google’s parent company) ratio of 20.47 and the industry median of 15.18.
The accelerating revenue growth at Meta has alleviated concerns about expected expense increases in 2024, which may arise from legal fees and infrastructure investments necessary for the competitive AI race within the tech sector.
“While there is some uncertainty regarding CapEx spending growth in 2024, we also see several monetization opportunities that can stem from these innovations,” noted Mark Mahaney of Evercore ISI.
(Reporting by Aditya Soni in Bengaluru; Editing by Saumyadeb Chakrabarty)
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