The results for the second quarter of fiscal year 2023 for Meta Platforms, Inc. (NASDAQ: META), an operator of social networking platforms, were better than expected. Also, the company’s sales projection for the next quarter ($33.3 billion at the midpoint) was far better than expected, coming in 6.89% higher than what analysts had predicted. Profit for Meta was $7.79 billion according to GAAP, up from $6.69 billion in the same period a year before.
Social media advertising platforms like Google (NASDAQ: GOOGL), Snapchat (NYSE: SNAP), Twitter (NYSE: TWTR), and Pinterest (NASDAQ: PINS) are among Meta Platforms’ main competitors.
Meta expects revenue to increase 20% year over year to $33.3 billion in the coming quarter, which would be an improvement after the 4.47% year-over-year decline it had in the prior quarter. Before the earnings report, market watchers had predicted 10.8% annual revenue growth for the company.
The ability to raise prices, create innovative products, and put money into advertising is all directly tied to a company’s gross profit margin. This is a crucial indicator for the long-term investor to monitor, as it may determine the winner in a competitive market. This quarter, Meta’s gross profit margin of 81.4% (the percentage of revenue left over after deducting the cost of goods and services) was down from the same period last year by 0.6 percentage points.
Customer support, data center, and other infrastructure costs are examples of the aforementioned that are common for social network firms like Meta. Meta was left with $0.81 out of every $1 in sales to go toward things like advertising, employee compensation, and product research & development.
Investors often look at operational income as a proxy for a company’s true profitability. Adjusted EBITDA, which is similar to operating income but excludes some non-recurring or non-cash expenses, is the most popular profitability statistic for consumer internet companies.
This quarter, Meta’s EBITDA was $16.1 billion, with a margin of 50.2%. In addition, Meta is now within a select group of the world’s most profitable consumer internet companies thanks to its astonishing EBITDA margins over the past four quarters.
We believe Meta has the financial wherewithal to execute a high-growth business plan, given its $755 billion market capitalization, $53.4 billion cash balance, and positive free cash flow over the preceding twelve months.
The next quarter’s sales forecast that Meta provided blew beyond the Consensus estimate. This amounts to growth of close to 20% per year. A few quarters ago, the company was barely generating revenue year over year, so this is welcome news. Meta also reduced its projected capex investment for the full year, which is a further tailwind to ahead free cash flow, and the firm topped free cash flow by a considerable amount. We’re happy too those earnings per share and revenue exceeded forecasts on Wall Street. The corporation, however, raised its annual spending forecast. Since investments in AI are generally viewed favorably and have the potential to yield long-term benefits, the market is likely to overlook this. We still believe this was a very successful quarter that should satisfy investors. After the report, the stock price increased by 6.44 percent, to $320.
We believe Meta to be an excellent company for a variety of reasons. It has seen consistent revenue growth, which is projected to accelerate in the near future.
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