We’re raising our Meta price target big time after a stellar quarter and an incredible guide
Meta Platforms shares soared Wednesday evening after the social media juggernaut delivered what can only be described as a blowout quarter. The only thing better than the reported results was the guidance. Revenue in the second quarter ended June 30 climbed 22% year over year to $47.52 billion, far exceeding the consensus estimate of $44.8 billion, according to LSEG. Earnings per share (EPS) surged 38% on an annual basis to $7.14, crushing expectations of $5.92, LSEG data showed. META YTD mountain Meta’s year-to-date stock performance. Meta shares jumped more than 11.5% to $776 each in after-hours trading, which would easily be a new record high close if the stock finished Thursday at these levels. We’re keeping our hold-equivalent 2 rating because it’s not our style to chase this kind of rally. However, we are raising our Meta stock price target to $825 per share from $800. Bottom line Coming into Wednesday evening’s release, our primary concern was with management’s revised outlook on expenses. After all, we know CEO Mark Zuckerberg has taken the gloves off, ready to go to war with anyone looking to compete in artificial intelligence. With competitor Alphabet’s spending outlook hike last week and the recent news of Zuckerberg offering up hundreds of millions to those he believes can ensure Meta is the first to achieve “super intelligence,” the Street was ready for some kind of raise. The concern was that it would be more than investors could digest. Fortunately, that was not the case. While the team did increase their outlook for both capital expenditures and total expenses for the full year, at the midpoint, they kept the upper end of the prior guidance range for both intact. Meta Platforms Why we own it : Meta Platforms dominants the world of targeted advertising with excellent technology, and its strong user engagement makes it a great place to advertise. The company’s scale provides the financial power and employee talent needed to pursue new growth avenues such as artificial intelligence, the metaverse, and virtual and augmented reality projects. Improved profitability in recent years has been a boon to earnings. Competitors : Alphabet , TikTok (owned by China’s ByteDance) and Snap Weight in portfolio : 4.55% Most recent buy : Sept. 6, 2022 Initiated : May 29, 2014 Between absolutely trouncing expectations for the reported quarter, guiding to a third (current) quarter revenue range that surpassed expectations, even on the low end, and keeping the upper cap on full-year expenses, it’s no wonder we’re seeing shares surge. As of Wednesday’s close, Meta was already up nearly 19% for the year. Given how aggressively management is pushing into AI, while ensuring the core business continues to dominate and grow, we see plenty of room for the stock to run from here. Not to mention, the stock doesn’t look all that expensive versus the overall market, at less than 27 times 2026 earnings estimates. Those earnings estimates will undoubtedly move higher following the Q2 strength, which could send the stock’s multiple below 26. Commentary This was a phenomenal quarter from Meta, with the revenue beat compounded by significant year-over-year operating margin expansion that helped translate into a monster EPS beat. Strength was seen in all key operating geographies, and cash flow was plenty strong enough to support the slightly higher-than-expected capex line item. Perhaps most important, though, is that Meta continues to drive strong engagement, with Family of Apps daily active people growing over 6% year over year to a greater-than-expected 3.48 billion. The Family of Apps segment includes Facebook, Instagram, WhatsApp, and Messenger. Zuckerberg noted on the post-earnings call that investments in AI are bringing users more content that they can better connect with. “Advancements in our recommendation systems have improved quality so much that it has led to a 5% increase in time spent on Facebook and 6% on Instagram. Just this quarter,” he said. On the ad side, Zuckerberg touted the benefits of the company’s investments in artificial intelligence, with a roughly 5% increase in ad conversions on Instagram and a 3% increase on Facebook, thanks to the expanded implementation of its AI-powered recommendation models. “We’re also seeing good progress with AI for ad creative,” he said. “With a meaningful percentage of our ad revenue now coming from campaigns using one of our generative AI features. This is going to be especially valuable for smaller advertisers with limited budgets.” The release highlighted 11% year-over-year growth in ad impressions across the Family of Apps, along with a 9% year-over-year increase in the average price per ad. CFO Susan Li also highlighted strong video engagement trends, saying that “Instagram video time was up more than 20% year over year globally.” She added, “We’re seeing strong traction on Facebook as well, particularly in the U.S., where video time spent similarly expanded more than 20% year over year.” Regarding WhatsApp, Li noted on the call that paid messaging revenue was the key driver behind the 50% increase in so-called Other revenue to $583 million. However, the benefit of the strong user base appears to go beyond WhatsApp, with Li adding that “WhatsApp continues to be the largest driver of queries as people message meta AI directly for tasks such as information gathering, homework assistance, and generating images outside of WhatsApp.” The Reality Labs segment saw 5% year-over-year revenue growth to $370 million, driven by sales of AI glasses, but partially offset by lower revenue from Quest headsets. However, the division lost $4.53 billion in the second quarter, a bigger loss than a year-ago but not as big as expected. Outside of the core business, Zuckerberg also sees advancements in artificial intelligence driving deeper engagement with Meta AI — the company’s answer to ChatGPT — which now has over 1 billion monthly active users. “We continue to see strong momentum with our Ray-Ban Meta glasses, with sales accelerating,” he said. Last month, Meta debuted new Oakley Meta smart glasses, the latest from the tech giant’s partnership with eyewear maker EssilorLuxottica. Regarding cash returns to shareholders, Meta repurchased $9.76 billion shares in the quarter and paid out another $1.33 billion in dividends. Guidance Meta expects third-quarter revenue in the range of $47.5 billion to $50.5 billion, which, even on the low end, easily surpasses consensus expectations of $46.15 billion, according to LSEG. As mentioned earlier, the company raised the lower end of its full-year capital expenditures forecast, now targeting between $66 billion and $72 billion, up from the prior range of $64 billion to $72 billion. The team said, on the release, that they expect “another year of similarly significant capital expenditures dollar growth in 2026 as we continue aggressively pursuing opportunities to bring additional capacity online to meet the needs of our artificial intelligence efforts and business operations.” Meta raised the lower end of its 2025 total expenses guidance to between $114 billion and $118 billion, up from the prior range of $113 billion to $118 billion. The team expects the total expense growth rate in 2026 to be above the rate seen in 2025. While both the capex and the total expense guides track a bit above expectations, according to FactSet, and the same appears to be true of that preliminary 2026 guidance commentary, it’s clear that the Street will allow it, at least for now. Meta is being a wide berth since the investments, thus far, are clearly paying off and helping ensure that the company is set up for further growth in the years ahead as artificial intelligence becomes ever more pervasive in our daily lives. (Jim Cramer’s Charitable Trust is long META. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.
<
