Meta’s Q3 Success Hints at Bright Future Amid Rising Costs

Meta Platforms(NASDAQ: META) experienced a decline in its share price after releasing its third-quarter earnings, despite achieving record revenue that exceeded expectations. Investors are now shifting their focus to the company’s rising expenses, as Meta plans to increase capital expenditures (capex) to seize artificial intelligence (AI) opportunities.

Let’s break down Meta’s Q3 performance and its AI plans to determine if this dip in stock price presents a buying opportunity for investors.

Strong Performance and Record Revenue

Reporting for Q3, Meta achieved record results, with revenue rising 19% year-over-year to reach $40.6 billion. Advertising income also saw a nearly 19% boost, totaling $39.9 billion. Furthermore, Reality Labs, which oversees Meta’s ventures into the metaverse and augmented reality, saw a revenue increase of 29% to $270 million. Operating income from apps hit $21.8 billion, contrasted with a loss of $4.4 billion from Reality Labs. The company’s earnings per share (EPS) jumped 37% to $6.03.

Daily active users across its family of apps increased by 5% year-over-year, averaging 3.29 billion in September, which fell slightly short of analyst expectations of 3.31 billion. The average revenue per user increased by 12% to $12.29. Ad impressions climbed 7% over the previous year, while the average price for advertisements grew by 11%. Notably, growth in the Asia Pacific region was pivotal for the increase in impressions.

Threads, Meta’s newest app, has gained momentum, reaching nearly 275 million monthly users, with growth of about 1 million users a day. The company has plans to implement more features to maintain user engagement, hoping to position Threads as the next leading social media app.

WhatsApp has also proven successful, achieving 2 billion daily calls worldwide. Positive trends among young adults on Facebook in the U.S. were reported, while Instagram’s Reels feature continues to encourage original content creation.

Looking ahead, Meta projected fourth-quarter revenue between $45 billion and $48 billion, with the midpoint of $46.5 billion surpassing analyst consensus of $46.2 billion.

Investing in Future Growth

Meta has also revised its full-year capex forecast upwards to a range of $38 billion to $40 billion, having previously estimated $37 billion to $40 billion. The company anticipates substantial increases in capex spending for 2025. CEO Mark Zuckerberg emphasized that investments in AI and infrastructure are essential for long-term growth.

AI is already enhancing user engagement and time spent on Meta’s platforms and is also benefiting advertisers by improving ad performance. Meta’s Llama large language model (LLM) is seeing a significant increase in tokens for AI computation. Currently, the company is training Llama 4 using over 100,000 H200 Nvidia graphic processing units (GPUs).

Image source: Getty Images.

Should Investors Consider Buying Meta Stock?

Mark Zuckerberg’s approach to spending reflects his commitment to pursuing future growth. While Reality Labs has been a financial burden, the increasing capex demonstrates Meta’s dedication to AI development. The viability of Reality Labs remains uncertain, but the gains in AI are promising.

Historically, Meta has invested heavily in platforms without immediate profit motives, as illustrated by the development of Facebook and Instagram. Eventually, these platforms monetized effectively, establishing Meta’s position as a powerhouse with a market valuation around $1.5 trillion. Given this track record, it is reasonable to trust Zuckerberg’s spending decisions aimed at future growth.

As long as Meta continues to innovate in AI, it stands to gain from increased engagement and advertising revenue. With a forward price-to-earnings (P/E) ratio of approximately 23 based on 2025 projections, the stock appears to be attractively priced.

META PE Ratio (Forward 1y) data by YCharts

Meta has a proven history of success, and its ongoing investments suggest it could continue to thrive. Consider purchasing shares at current levels.

Seize This Investing Opportunity

Have you ever felt like you overlooked the chance to invest in a winning stock? Now could be your moment.

Occasionally, our analysis team identifies specific stocks they believe are primed for significant growth. If you think you’ve missed your chance, take advantage of this opportunity before it’s gone. Here’s some impressive data:

• Amazon: $1,000 invested when we recommended it in 2010 would be worth $22,292 today!*
• Apple: A $1,000 investment from our 2008 recommendation now sits at $42,169!*
• Netflix: If you had invested $1,000 when we doubled down in 2004, you’d now have $407,758!*

Currently, we are issuing alerts for three exceptional companies, and this may be a unique opportunity.

Discover 3 “Double Down” stocks »

*Stock Advisor returns as of October 28, 2024

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook, and sister to CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Geoffrey Seiler holds no shares in the mentioned stocks. The Motley Fool recommends Meta Platforms and Nvidia. For more details, please refer to our disclosure policy.

The views expressed in this article represent the opinions of the author and do not necessarily reflect those of Nasdaq, Inc.