META Crushes Earnings and Catapults to All Time Highs!

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Market News and Short-Term Predictions

Zuckerberg is back on top after META earnings today. The numbers speak for themselves below.

High-Level Earnings Results:

• Q4 GAAP EPS of $5.33 beats by $0.39.

• Revenue of $40.11B (+24.7% Y/Y) beats by $940M.

• Revenue was $40.11 billion and $134.90 billion, an increase of 25% and 16% year-over-year for the fourth quarter and full year 2023, respectively.

• Ad impressions delivered across our Family of Apps increased by 21% year-over-year and the average price per ad increased by 2% year-over-year. For the full year 2023, ad impressions increased by 28% year-over-year and the average price per ad decreased by 9% year-over-year.

• The first quarter of 2024 total revenue is expected to be in the range of $34.5-37 billion vs $33.87B consensus. 

• Meta's board of directors declared a cash dividend of $0.50 per share.

• Announced an increase to its stock buyback of $50B.

They beat on everything across all metrics and also added a couple of cherries on top with the buyback and dividend announcements. Just by paying a $2/share dividend, Zuck is about to get paid $700 million a year in dividends for the shares he owns. 

It might as well be Elon in that meme above because instead of fighting him in the ring, Zuck might catch up to him soon in terms of net worth!

The stock will open well above its previous highs back in 2021 from the metaverse hype days (as it is up 15% after hours) and it's mostly due to them continuing to print money with their core ad business model while increasing their operating margins to 41% on the quarter.

And their stock symbol is still Meta for a reason, as you'll see they posted another operating loss of $4.6B in the quarter for reality labs. But the investors are less worried about that when it's seen as a bet on the future that could pay off big down the line and they have their core business funding the innovation. They have also continued to talk about their push into AI, which the market loves to hear as that has a massive total addressable market.

I also like to see that their expenses are showing that they aren't frivolously spending as their expenses as a % of revenue are in the lower range of the company's history.

In regards to valuation, I don't think META is anywhere near bargain levels anymore. While their growth reignition is promising and their business model is looking out into the future, a P/E in the higher 30s tells me the stock is getting a bit of a premium. For me, the stock is more of a HOLD at these levels or possibly a trim candidate.

Looking at the general market, the big news this week revolved around the Fed and Jerome Powell reiterating that rates are staying where they are and that they want to hold those rates until inflation comes down to 2%. This spooked the markets...for a day before roaring back to all-time highs lol. I believe the market isn't buying that the Fed will hold rates in the 5% range for too long, only because the bond market and 10-year rates are continuing their downtrend after a short-term bump.

Lessons to Be Learned

Another tech giant reported earnings today...Apple. They did beat, but the market didn't respond the same way it did to META.

High-Level Earnings Results:

• Q1 GAAP EPS of $2.18 beats by $0.07.

• Revenue of $119.6B (+2.1% Y/Y) beats by $1.34B.

• Net sales by category: iPhone: $69.7B (6.0 Y/Y %); Mac: $7.78B (0.5 Y/Y %); iPad: $7.02B (-25.2 Y/Y %); Wearables, Home and Accessories: $11.95B (-11.4 Y/Y %); Services: $23.12B (11.4 Y/Y %).

I've talked about it before on my socials, but Apple is my least favorite mega-cap tech company and it's not because of their products. It's the valuation. The stock and company are worth 3 trillion dollars and to move the needle they need to penetrate new markets or create new products. I believe without launching a new product the company will see stagnation in their revenue.

While analysts will point to growing service revenue as a margin driver, the mix of revenue is still mostly products. With a P/E of 30 and essentially flat growth, I am not a buyer of Apple here. If it came back to 20-25 it may pique my interest as I don't believe Apple is going away anytime, but their days of 10-20% growth are behind them...unless they come out with some game-changing software/hardware. I don't buy that selling Vision Pros for $3499 is the key to their growth story, but hey I could be wrong.

The lesson in all of this is valuation should be connected to growth. The lower the growth the lower the multiple I expect, the higher the growth the higher the multiple I expect. If there is a disconnect for a long enough period, the valuation will always adjust to align.

Portfolio Update

Stock Watchlist

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