In a recent financial update, Meta Platforms Inc. (NASDAQ: META) revealed its fourth-quarter results, surpassing market expectations with revenues of $48.4 billion and earnings per share (EPS) of $8.02. Despite these impressive figures, the company's first-quarter outlook was less optimistic, falling short of analysts' predictions. The stock has surged 92% since the start of 2024, outpacing the S&P 500 index. However, concerns about high capital expenditures and an uncertain macroeconomic environment have dampened investor enthusiasm. While Meta's AI investments are showing promise, especially in enhancing user engagement and ad targeting, the company must balance these advancements with financial prudence.
The robust performance in the fourth quarter can be attributed to a significant increase in both ad impressions and the average price per ad. Meta's family of apps, including Facebook, Instagram, Threads, and WhatsApp, saw a 5% rise in daily active users to 3.35 billion. This growth underscores the company's continued dominance in the social media landscape. Additionally, Meta's operating margin expanded by 700 basis points year-over-year, reaching 48%, which contributed to a 50% increase in EPS. The company is making substantial infrastructure investments to support its AI initiatives, with projected capital expenditures between $60-65 billion for 2025. These investments aim to bolster Meta's competitive edge in the rapidly evolving digital advertising sector.
Despite the strong fourth-quarter performance, Meta's forward guidance for Q1 revenue is estimated between $39.5 billion and $41.8 billion, slightly below market expectations. This cautious outlook, coupled with the planned high capital expenditures, raises questions about the sustainability of Meta's growth trajectory. Investors are also concerned about the volatility in Meta's stock returns over the past four years, with annual fluctuations ranging from -64% in 2022 to 194% in 2023. In contrast, the Trefis High-Quality Portfolio has provided more consistent and less volatile returns, outperforming the S&P 500 with over 91% gains since inception.
The current valuation of Meta stock at $690, trading at 29 times trailing earnings, suggests that the stock may be fully valued. While the solid advertising growth justifies some increase in valuation multiples, the aggressive AI investments pose risks. Investors will closely monitor whether these investments translate into meaningful earnings growth. In this uncertain macroeconomic climate, Meta must navigate the challenges of rate cuts and the rising influence of AI in global markets. As investors weigh the potential for a strong jump in Meta's stock, they should also consider the broader market context and the performance of alternative investment options like the Trefis High-Quality Portfolio.