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Investors Business Daily
Investors Business Daily

IBD Stock Of The Day: Meta's Earnings Show Facebook Parent's AI Promise

Meta is the IBD Stock of The Day as the Facebook parent company is rebounding back to its 50-day line. Meta stock fell last week despite an earnings report that topped Wall Street's expectations and highlighted its artificial intelligence progress.

On the stock market today, Meta stock rose 2% to close at 302.66. Shares for the social media giant have gained 152% this year, placing Meta stock among the best performers in the S&P 500.

But Meta stock fell 3.7% on Oct. 26, the day after it reported third-quarter earnings. Earnings beat targets but the company warned about an uncertain advertising environment in recent weeks.

Still, Meta stock's Relative Strength score of 98 is near recent highs, indicating continued outperformance of the S&P 500.

Q3 Earnings: AI 'Continues To Shine'

In earnings published late Wednesday, Meta said it earned an adjusted $4.39 per share on revenue of $34.1 billion for the quarter ending Sept. 30. Analysts polled by FactSet expected Meta to report adjusted earnings of $3.64 per share from revenue of $33.6 billion.

Earnings were up 168% year-over-year. Meanwhile, the company's 23% sales jump markets its fastest sales growth in two years.

Daily users within Meta's Family of Apps — referred to by the company as daily active people — grew by 7% annually to 3.14 billion. The category includes Facebook, Instagram, Reels, Threads and WhatsApp.

After a rough 2022 for the business, artificial intelligence tools have helped Meta's advertising sales bounce back. A group of automated ad campaign tools from Meta called Advantage+ reached a $10 billion annual run rate roughly a year after launch, the company said.

Chief Executive Mark Zuckerberg said more than half of Meta's advertisers are using the tools. Further, Meta cut its expenses to $20.4 billion, down 7% from the same period last year.

Morgan Stanley analyst Brian Nowak maintained an overweight rating for Meta stock following the report, highlighting the commentary on Advantage+.

"Meta's (return on invested capital) on AI continues to shine," Nowak wrote in an Oct. 26 client note.

Meta Stock: Caution For Q4

Meta stock rose after-hours immediately following the earnings report. But trading quickly turned negative in response to comments from the company.

On the company's earnings call, Chief Financial Officer Susan Li noted ad sales for the company could be affected by the Israel-Hamas war.

"While we don't have material direct revenue exposure to Israel in the Middle East, we have observed softer ad spend in the beginning of the fourth quarter, correlating with the start of the conflict, which is captured in our Q4 revenue outlook," Li said.

For the current fourth quarter, Meta expects revenue of $36.5 billion to $40 billion. The midpoint of that range, $38.25 billion, was short of analyst expectation of $38.8 billion, according to FactSet. Several analysts noted that the guidance also represented a wider range than Meta typically provides.

The warning was similar to one given by Snapchat parent company Snap during an earnings report a day earlier.

European Subscriptions

In other Meta stock news, the company said Monday it will offer an ad-free subscription option next month for people who use Facebook or Instagram in Europe.

Starting next month, available plans will range between 9.99 euros per month and 12.99 euros per month.

The company said it is launching the product "to comply with evolving European regulations." Regulators have been pushing Meta to more clearly seek user consent before showing them targeted ads.

Meta Stock Technical Ratings

Meanwhile, Meta stock is in a consolidation pattern. Meta shares retaking the Oct. 25 high of 310.88 could be an early trigger, as the stock breaks a short downward trend. The market is in a correction, however, indicating that it's not a good time to buy new stocks.

Meta shares boast a best-possible IBD Composite Rating of 99, according to IBD Stock Checkup. The score combines five separate proprietary ratings into one. The best growth stocks have a Composite Rating of 90 or better.

Further, Meta stock is on the IBD Tech Leaders list.

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