Meta is Currently the Hottest Tech Stock

Meta Platforms Inc.'s leaner, faster, more competitive organization is impressing Wall Street analysts, who believe that the company's stock will be more durable through a slowdown in the economy due to cost savings and stabilizing advertising trends.

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As Meta started cutting thousands of jobs in the wake of falling sales in November, shares of the company have surged 140% from a seven-year low. Further layoffs were announced by the company at the end of last month, and the company pledged to become more efficient, contributing to the rally. 

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The price target of the stock has been increased by more than two dozen brokerages since more than two dozen job cuts were announced during the second round of job cuts. Over the past three months, analysts have also increased Meta's earnings per share estimate for 2023 by 15%. This is according to data compiled by Trade Algo over the past three months. In March, Morgan Stanley's Brian Nowak re-instated his buy-equivalent rating on the stock after sitting on the sidelines for less than five months. 

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Ad sales have slowed down, but they are at least stabilizing, according to bulls in the market. Aside from these positive signs for earnings, changes to Apple Inc.'s privacy policies that make it harder to target iPhone users with ads have now been in place for long enough that they are no longer affecting Meta's year-over-year growth rate on a year-over-year basis.

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"A recent rally by Meta is likely to be the result of a combination of extensive cost-cutting measures as well as adjusting to the negative impact of Apple’s privacy changes that significantly hurt advertising revenue," according to Mike Akins, founder of ETF Action, which provides indexes for Amplify's MVPS ETF. "I think that Meta's recent surge was largely a result of it recovering from oversold conditions."

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As analysts' earnings estimates for Meta are also rising along with the stock price, Meta's shares remain much cheaper than its big tech peers and the Nasdaq 100 Index as a result. The current valuation of Meta is 17 times forward earnings, a lower multiple than its historical average of 26 times over the past 10 years, according to Trade Algo data. The price-earnings ratio for Amazon.com Inc. trades at 36 times, Microsoft Corp. is at 28 times, Apple is at 26 times, and the tech-heavy index trades at 24 times. 

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Despite a weaker consumer spending environment, Morgan Stanley's Nowak called Meta the most durable megacap if consumer spending declines, as the company's cost reductions have been more aggressive than those of competitors like Alphabet Inc. 

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Due to concerns about inflation and the possibility of a recession, businesses have been forced to cut back on their advertising budgets, crimping their main revenue stream for companies like Meta, Alphabet, Google's parent company, and Snap Inc. The overall advertising demand, however, is also showing some signs of stability, according to some analysts, such as Michael Morris at Guggenheim. 

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Even so, some investors may be unwilling to pay up now for Meta as a result of the blistering rally since November, especially when it comes to the fact that there is a possibility of a recession ahead. Regardless of whether Meta's advertising business can hold up better than its competitors if the downturn is steep enough, all media stocks will be adversely affected by it.

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It is estimated that Meta has averaged revenue growth of 42% over the decade since 2012, according to Trade Algo data, until the beginning of last year. Last year, the company shocked investors by reporting its first-ever decline in sales. Since the trend seems to have stabilized now, its sales are expected to grow by 4.7% this year, with a growth rate of more than doubling to about 11% in 2024. 

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Under the leadership of CEO Mark Zuckerberg, Meta has managed to regain its growth momentum, despite the slower cadence compared to what investors are used to.

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“Mark Zuckerberg has made a great deal of progress over the past couple of months in many respects: he has begun to think about how the company should run like a normal company, rather than a tech company with top-line growth that can cover up a lot of mistakes, as they did not have that anymore," according to Mark Stoeckle, chief executive officer of Adams Funds, which owns the company. 

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There has been a 20% rise in the Nasdaq 100 this year, generating a combined market value of $2.6 trillion. Due to this growth in equity capitalizations, it is now possible to find 28 companies in the benchmark with equity capitalizations of over $100 billion, as the tally has risen for a second consecutive quarter. There are still fewer than 34 people in the country than there were at the end of 2021. As a result of Tuesday's rise, the gauge was up 0.2%.