Meta Platforms’ (NASDAQ:META) stock surge continues to be driven by its fundamentals, with robust growth in ad revenue continuing to remain the story with most investors. With over 3 billion daily app users, engagement has soared alongside the company’s stock price.
This surge in engagement has allowed META stock to exceed expectations, reporting earnings per share of $4.27 this past quarter, up 61.7% from the same quarter last year. The company’s fiscal year estimates also show strong growth. Last quarter, revenue soared to $40.11 billion, a 24.7% year-over-year increase. Meta has consistently surpassed EPS and revenue estimates, and I’d expect this trend to continue long-term.
The company’s earnings expanded notably. Despite Reality Labs’ widening losses, overall earnings nearly doubled in 2023, with operating income surging to $47 billion. Operating profit margin reached 35%. The company aims to regain pre-pandemic profitability levels. Analysts predict a 33% EPS rise to $20. Margins may approach 50%, enhancing Meta’s premium valuation.
That said, there are some key headwinds to factor into the equation. Here’s the latest one investors may not be aware of. Let’s dive into whether Meta is still worth buying on this news.
Illegal Drug Sales Investigation
Federal prosecutors, per unnamed sources in the Wall Street Journal, are investigating Meta Platform’s potential role in drug sales via its platforms. Subpoenas requested records on drug-related content. Meta spokesperson emphasized policy enforcement against illicit drug sales and cooperation with law enforcement. The response from rivals such as TikTok’s remains undisclosed.
In 2022, researchers gathered Facebook prescription drug ad data for the Journal and received a subpoena. Meta didn’t respond immediately. Meta’s Nick Clegg announced joining the Alliance to Prevent Drug Harms. The U.S. and UN collaborate with Meta and others to combat online drug activity.
For now, this appears to simply be a probe, but it’s something investors may want to keep an eye on. Meta has been the focus of regulator scrutiny in the past, and that’s mainly the negative catalyst that took this stock to 2022 lows. A repeat of such a situation would not be good for existing shareholders, but the outcome of this probe remains unknown. So, for now, the market appears to be brushing off the news.
There Are Other Catalysts to Consider
Aside from Meta’s regulatory struggles, there are plenty of positive catalysts to consider. From the company’s AI integrations to its strong and growing social media empire, this is a stock that’s garnered attention for its core platform and user base. That won’t change anytime soon.
Additionally, an integration with Verb Technology (NASDAQ:VERB), creator of MARKET.live, with Meta Platforms for seamless in-app shopping on Facebook and Instagram is driving interest in META stock from some investors. This collaboration broadens MARKET.live’s reach, and should allow Meta to benefit from in-app shopping on its social platforms.
This deal should align well for both companies, as Meta seeks to broaden reach and value for stakeholders, per a press release. This reflects ongoing innovation in social shopping. Further updates will be shared via social media and MARKET.live.
META Stock Could Continue to Soar
These past two years have been much better than the 2022 investors were forced to endure with META stock. Of course, Zuckerberg has shifted his focus from the metaverse to his core business, instead focusing on efficiency and high-growth opportunities. Investors have liked what they see, and this has clearly been reflected in the company’s fundamentals.
Over the long-term, I don’t think this picture will change. The company’s reported net income in 2023 was $39.1 billion, equating to $14.87 per share. With a price-earnings ratio of 33.4-times, Meta appears to be fairly-valued relative to the Nasdaq-100 index. However, analysts anticipate a 22.4% earnings growth in 2024, suggesting potential undervaluation by year-end.
Despite a 547% gain since October 2022, Meta stock remains a promising investment, at least in my books.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.