Meta Platforms stock experienced a surge on Thursday as Wall Street analysts praised the company's impressive second-quarter earnings. Key factors contributing to this success include the growth of short-form videos, strong advertising trends, and Meta's expanding presence in artificial intelligence.
In particular, Meta's Reels short-form video format has witnessed remarkable growth, with daily video plays surpassing 200 billion, according to the company's earnings report. This progress has also been reflected in the monetization of Reels, as 75% of all advertisers have adopted this new ad unit.
Analyst James Lee from Mizuho Securities commented, "Reels monetization continues to display progress, with 75% of all advertisers adopting the new ad unit. At the same time, AI-powered content-ranking in the feed is driving higher time spent."
Furthermore, Lee addressed a major concern regarding competitive threats from TikTok. He stated that Reels appears to be capturing market share from TikTok, mitigating the potential risk for Meta stock. As a result, he increased his target price on Meta to $400 from $350, reflecting a valuation of the stock at 11 times the per-share earnings before interest, tax, depreciation, and amortization projected for 2025.
The positive response from analysts and investors is evident in Meta shares, which rose by 8.8% during premarket trading on Thursday and reached $324.88. Notably, Meta shares have more than doubled since the beginning of this year, indicating strong growth and investor confidence.
Overall, Meta Platforms' impressive performance in Q2 has garnered praise from analysts for its successful ventures in short-form videos, advertising trends, and artificial intelligence. With Reels driving monetization and potential market share gains from TikTok, Meta appears to be on a promising trajectory for future success.
Artificial Intelligence Driving Meta's Success
Artificial intelligence has emerged as a key driver of success for Meta following the recent commercial launch of their new AI language model, known as Llama 2. According to J.P. Morgan analyst Doug Anmuth, Meta's substantial investments in AI are paying off, as AI-generated content gains traction and boosts user engagement. Anmuth recognizes Meta's strongest product platform in recent times, attributing the success, in part, to their AI initiatives.
Increased Target Price and Valuation
In light of Meta's positive performance, Doug Anmuth has revised his target price for the company. He raised it to $425 from the previous $305, extending the target period by 12 months to the end of 2024. Anmuth's new target price is based on a valuation of 18 times Meta's projected earnings per share for 2025.
Concerns Over Continued Investments
Although Meta is experiencing significant growth, some analysts have noted concerns regarding the company's ongoing investment plans. Meta has emphasized higher depreciation and payroll expenses anticipated in 2024 due to their shift toward hiring more technical roles following a series of job cuts. Additionally, increased operating losses are expected from Meta's Reality Labs unit this year.
Limited Share Appreciation Predicted
Benchmark analyst Mark Zgutowicz cautions that expenses and upcoming challenges may limit share appreciation beyond current peak levels in 2021. Zgutowicz maintains a Hold rating on Meta stock without assigning a specific target price.
In conclusion, Meta's AI-driven strategy has propelled their success thus far. However, analysts remain cautious about Meta's continued investment plans and potential limitations in share appreciation. Nonetheless, Meta continues to demonstrate the potential for further growth in the future.