Meta Platforms (NASDAQ:META) skyrocketed more than 20% in aftermarket trading after reporting their Q4 and full year 2023 results. The company added $196 billion in market cap gains, reportedly the largest in stock market history. This is a key part of this META stock analysis.
META stock reported Q4 2023 EPS of $4.33 per share on sales of $40.11 billion. This was above Wall Street estimates, and their full-year results were even more impressive. CEO, Mark Zuckerberg highlighted the 2023 fiscal year as the ‘’year of efficiency’’, as the company cut costs and made key investments in generative AI.
But the icing on the cake was the board of directors announcing META’s first-ever dividend of $0.50 per share. This dividend signals their commitment to returning value to shareholders and highlights their maturing profile and more predictable cash flow generation. While the stock has already gained significant value in 2024, its valuation is still reasonable compared to its competitors.
Cost-Cutting Efforts To Accelerate Growth in FY24
During the pandemic when there were more favorable economic conditions, big tech went on a huge hiring spree. This led to companies like Meta to increase their headcount while investing significant CAPEX into the Metaverse.
In hindsight this was a bad move, but the company was extremely bullish on the Metaverse which has yet to pan out. However, despite losing tens of billions of dollars on the Metaverse the company remains in great financial shape. After closing out the 2023 fiscal year, Meta had $65.40 billion in cash and marketable securities. This is a key part of this META stock analysis.
Meta headcount for the quarter ended December 31st, 2023 was 67,317, a decrease of 22% YOY. This was a huge strategic move as the company plans to ramp up infrastructure-related costs for AI development in 2024.
While the company expects to meaningfully increase CAPEX over the next few years, the advent of AI will be a significant growth driver. This will also translate to significant cash flow generation, as the company’s profile transitions from growth to dividend growth stock.
Generative AI Will Drive Advertising Revenue Growth
While core social media platforms remain crucial, Meta views artificial intelligence as the key to unlocking future growth. The company anticipates full-year 2024 CAPEX to be in the $30-37 billion range, a $2 billion increase from the higher range of prior estimates. Investments will largely be allocated to AI hardware and software architecture, as well as data center expansions.
The company is also investing heavily in areas like natural language processing (NLP), computer vision, and conversational AI. These technologies power features like personalized recommendations, content moderation, and augmented reality experiences.
There are also many positive benefits of AI development to boost advertising revenue growth over the next decade. AI will contribute to enhancing user engagement with more personalized feeds. Additionally, AI can tailor advertising campaigns to specific demographics and interests, leading to higher conversion rates and ad spending for businesses.
Meta Stock Analysis: Valuation Is Still Reasonable
After surging more than 20% after reporting their Q4 and full year 2023 results, Meta has a number of growth tailwinds behind it. Most notably, the long-term growth prospects of generative AI to boost advertising revenue growth.
However, that isn’t the only thing that it has going for it. AI will play a central role to accelerated growth and their Metaverse investments have yet to materialize. Virtual avatars and immersive experiences could start to attract more users in the next few years and create new revenue growth opportunities.
Additionally, Meta is still reasonably valued when compared to its competitors. Meta currently trades at 24 times forward earnings, when compared to Microsoft’s 35 times forward earnings.
META stock is guiding $34.5-$37 billion in revenue in the first quarter of 2024, reflecting approximately 28% YOY growth. The company announcing its first-ever dividend is a positive sign for the future, and 2024 should be another strong year of growth. This concludes my META stock analysis.
On the date of publication, Terel Miles did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
