| Symbol | Transaction Type | # Shares Traded | Recent Price $ | Shares Owned After Trade | % Portfolio |
|---|---|---|---|---|---|
META | Buy | 35 | $578.50 | 145 | 1.75% |
After you receive this alert, we will buy 35 (META) shares at or near $578.50. Following the trade, the Portfolio will own 145 META shares, roughly 1.75% of the Portfolio.
Shares of Meta Platforms are trading off modestly in response to the company’s September quarter results that bested market consensus forecasts with its top line continuing to climb double digits year over year. As we suspected could be the case, the market is focusing on Meta’s comments about its capital spending levels. During the earnings call, management shared that its full-year 2024 capital expenditures will be in the range of $38 billion to $40 billion, up from its prior range of $37 billion to $40 billion and it continues to expect significant capital expenditures growth in 2025.
While the initial reaction to those comments led META shares to trade off, when we examine the last few quarters that included higher capital spending levels, we find the company has not only delivered higher revenue, but its operating margins have also trended higher, benefitting from ongoing cost containment. Meta’s operating margin in 3Q 2024 rose to 42.75%, the highest level in multiple quarters and the company’s guidance suggests a modest decline in the current quarter to around 42% or so based on its $45 billion to $48 billion December revenue forecast.
Looking at these figures that point to greater profitability this year compared to 2023 means the market should eventually deduce that Meta is not struggling to invest for the future at the expense of near-term profitability. That realization led Alphabet (GOOGL) shares to trade higher on Wednesday, and we would not be surprised to see that happen with META shares in due course. Helping fuel that thinking is META’s ability to squeeze incremental cost out of the business as it harvests these investments, which should also help drive advertising revenue and engagement across its various platforms. We see that leading to further operating leverage over the medium- to long term.
Our thinking is that this will lead the market to deduce Meta has ample resources on hand, including operating cash flow, to fund the majority of these investments as its overall profitability steps higher. Based on its updated outlook for the current quarter, Meta’s 2024 operating margin is targeted to be around 40% last year compared to 35% in 2023. Even if its 2H 2024 operating margin of 42.4% is the run rate for 2025, it’s still a nice step higher, which means Meta can continue to invest while delivering favorable bottom-line growth even as it faces more difficult year-over-year revenue comparisons in 2H 2025.
Boosting Our Meta Price Target to $675
In response, we are boosting our META price target to $675 from $630, which offers just over 15% upside from current levels. That gives us enough reason to pick up more shares for what is currently a small position for the Portfolio. Should we see the shares move lower toward the 50-day moving average near $555, all things being equal, we would be inclined to pick up more shares, and potentially revisit our Two rating. For now, we’ll leave our META panic point at $475 but as the shares move higher, we expect it will be lifted higher.
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(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade's executed price here. Be sure to click on Closed Trade Gain/Loss and toggle the chart to sort by Purchase Date.)
At the time of publication, TheStreet Pro Portfolio was long META and GOOGL.