The Meta share price falls 10% on weak Q2 guidance — should investors consider buying?

There’s
not
much
to
dislike
about
a
company

growing
revenues
at
27%
and
earnings
per
share
at
117%.
But

Meta
Platforms
(NASDAQ:META)
saw
its
share
price
fall
after
its
Q1
earnings
report.

The
company’s
results
for
the
first
three
months
of
2024
came
in
ahead
of
expectations.
But
having
increased
by
137%
over
the
last
12
months,
a
more
tepid
outlook
for
Q2
caused
the
stock
to
pull
back.

Strong
earnings

If
Meta’s
report
had
a
weak
point
–
and
I
think
it
did
–
it
was
the
metaverse
segment.
Reality
Labs
reported
lower
revenues
and
managed
to
burn
through
another
$3.8bn
between
January
and
March.

Meta
Platforms
Q1
earnings
report:

Source:
Meta
Platforms
Earnings
Presentation
Q1
2024

This
was
more
than
offset
by
the
company’s
social
media
results
though.
Revenues
from
the
Family
of
Apps
increased
by
$7.7bn
and
income
grew
by
$6445
–
more
than
offsetting
the
metaverse
loss.

Furthermore,
the
number
of
people
using
Meta’s
social
media
platforms
increased
again.
I’d
have
thought
they’d
start
running
out
of
humans
soon,
but
not
yet
–
the
number
of
users
increased
by
7%.

Realistically,
investors
can
overlook
the
metaverse
incinerating
capital
when
higher
revenues
and
lower
costs
are
causing
earnings
to
more
than
double.
But
things
don’t
look
as
good
going
forward.

Weak
guidance

For
the
next
three
months,
Meta’s
forecasting
revenues
of
between
$36.5bn
and
$39bn.
That
implies
growth
ranging
14-22%
–
slightly
lower
on
average
than
the
20%
analysts
were
anticipating.

On
top
of
this,
the
company
raised
its
forecast
for
expenses
through
the
rest
of
the
year.
The
forecast
for
capital
expenditures
increased
from
$30bn-$37bn
to
$35bn-$40bn. 

Meta
expects
its
expenditure
to
keep
increasing
beyond
this
year
as
the
firm
looks
to
build
out
its
artificial
intelligence
(AI)
capabilities.
Oh,
and
Reality
Labs
is
set
to
lose
yet
more
money.

A
42%
increase
in
the
Meta
share
price
since
January
reflects
the
company’s
strong
growth
this
year.
But
the
stock’s
pulling
back
in
anticipation
of
slower
growth
and
weaker
margins
going
forward.

Time
to
buy?

Accounting
for
its
latest
results,
a
10%
drop
puts
Meta
shares
at
a

price-to-earnings
(P/E)
ratio
of
around
24.
That’s
high
but,
arguably,
not
outrageous. 

The
company’s
shown
it
has
some
legitimate
AI
credentials.
And
these
are
backed
by
some
serious
capital
and
a
management
team
that’s
unafraid
of
making
bold
investments.

This
could
make
Meta
a
serious
force
in
AI.
But
the
question
investors
need
to
consider
is
whether
this
is
the
next
Family
of
Apps
or
the
next
Reality
Labs? 

At
today’s
prices,

the
stock
looks
like
a
bargain
only
if
the
AI
investments
add
at
least
incremental
value
to
the
business.
They
might
do
this,
but
I
find
it
hard
to
weigh
Meta
against
its
rivals
here.

Reality
check

A
10%
pullback
doesn’t
change
the
fact
that
investors
who
bought
Meta
shares
a
year
ago
have
done
very
well.
And
this
isn’t
just
hype
–
the
underlying
business
has
produced
exceptional
results. 

Equally
though,
the
stock
falling
slightly
after
strong
Q1
earnings
doesn’t
quite
put
it
into
obvious
buying
territory
for
me.
If
Reality
Labs
could
chip
a
bit
more
off
the
price,
I’d
happily
take
another
look.