Meta Delivers Another Blowout Earnings Report. Here's What Investors Need To Know
Key Points
Meta beat estimates on the top and bottom lines after an adjustment for a legal charge.
Muse has already reached 10 million users in North America, and the company believes it has the potential to double U.S. revenue.
With a new class of non-voting shares, Meta is effectively issuing a 2-for-1 stock split.
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Meta Platforms (NASDAQ:META) came into its third-quarter earnings report, riding a bullish wave after its release of Muse, its AI personal agent that has topped the app download charts.
The launch of Muse and its frontier model, Muse Wonder, has helped dispel the notion that Meta is just an advertising business and alleviates one of the biggest risks facing the company, as nearly all of its revenue comes from advertising.
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The third-quarter report shows the Facebook parent's momentum continuing to build, and it bodes well for its future. Here's what investors need to know about the latest report.
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1. Meta is executing across the board
It's hard to find a flaw in Meta's latest quarter. Revenue rose 26% to $64.6 billion, which topped expectations at $63.4 billion. On the bottom line, the company reported earnings per share of $3.83 due to the impact of its $18.59 billion settlement over litigation around teen health and social media and a $9.89 billion charge it took as part of that. Adjusted for that, it would have finished with $22.9 billion in operating income and $7.40 in earnings per share.
Meta's ad business continued to deliver strong results with ad impressions up 10% and the average price per ad up by 14%, showing the company is delivering results for advertisers.
The company also delivered those results with 15% fewer employees, as it cut its headcount by roughly 10,000 in layoffs earlier this year, freeing up more cash to invest in AI.
The company even sees a narrower loss in its AI-focused reality labs division, calling for a loss of $18 billion-$19 billion, which is still enormous, but is at least trending in the right direction. It forecast losses in that segment to narrow to around $15 billion next year, a clear positive sign.
2. Meta sounds more bullish than ever on the future
Meta's ad business is delivering blockbuster results, but the company also seems to have a swagger from its momentum in AI and the Muse launch that it didn't previously have.
Its CFO outlook commentary said, "Our AI investments are already delivering substantial incremental advertising revenue through stronger engagement, better recommendations, and more efficient monetization." The company also called for strong overall revenue growth to continue through 2027.
CEO Mark Zuckerberg also shared that more than 10 million people in North America had set up Muse personal agents, and the company expects to eventually have billions of Muse users. Zuckerberg essentially said that he thought Muse could double the company's revenue over time, saying he expected Muse to reach a higher average revenue per user than it earns from advertising in the U.S. He also noted shopping has been the most popular use case, which is clearly monetizable for a company that has the world's second-biggest advertising business, and has half of the world on its platforms.
3. Meta is issuing a stock split
For the first time since its 20212 IPO, Meta is splitting its stock. The company is issuing one share of a new Class C non-voting stock for each share of Class A and Class B supervoting shares.
Effectively, the stock dividend will act as a 2-for-1 split, and the company expects the share price to reflect that once the stock dividend is executed on Jan. 19, 2027.
Management argued that creating a new class of non-voting shares would give it more flexibility in raising cash and in employee compensation. Additionally, the board of directors sees it as a way to continue maximizing long-term shareholder value and to keep Mark Zuckerberg at the helm of Meta.
Though stock splits don't change the fundamentals of a stock, investors still like them, and this one seems deserved with Meta stock trading around $700/share.
Overall, with strong growth in the core business and the emergence of AI, Meta looks well-positioned for further growth, especially as the stock trades at a discount to the S&P 500.
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Jeremy Bowman has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
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