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Yesterday seemed to be a meteoric rise Meta platform (NASDAQ:META) stock. After closing Wednesday at $153, Meta’s stock price ended Friday at $188.77, up more than 23%. The positive results released after the market closed were the main catalyst. But with the stock still down 20% over the past year, I think it has room to go higher. This is why.
Positive value of earnings
Q4 results are out – as usual – with full year figures. It shows that the number of daily active users on Facebook is growing by 4% annually, eventually breaking the 2 billion mark. This is an impressive number of users on the platform and shows the dominance (and growth) that the site still has.
Another positive is taken from the expected cost reduction. Costs are expected to drop by $5bn in 2023, partly due to the 11,000 head cuts announced late last year. The broader restructuring will also reduce inefficiencies, which led CEO Mark Zuckerberg to refer to this coming year as “year of efficiency”.
Finally, there was cheering from the announced $40bn share buyback plan. Meta only has $40.74bn in cash and cash on hand, so I’m not entirely sure how it plans to finance repurchasing, but I’ll leave that for the accountants to work out!
Some risks to note
Investors clearly took the overall report as a big positive, shown by the jump in Meta’s share price. But there are also some points that I need to be careful about.
For starters, net income was down 51% for Q4 2022 versus Q4 2021. That’s down 41% on a year-over-year basis. Revenue was down 1%, with spiraling costs driving lower profits. Zuckerberg can make all the claims he wants, but only time will tell if the cost cutting actually filters down to increased net income.
Businesses are a bit confused about which direction to take. There is a metaverse, which was pushed a lot last year. There are also traditional platforms such as Facebook and Instagram. He also spoke about the development of artificial intelligence and Reels products. Lack of focus on one key area can be costly.
More upside potential ahead
But I feel that Meta stock can continue to rise. Last year’s short-term bad news about cost reductions is now behind us. Investors are focused on the future, which is agile and more efficient companies. If we continue to get good news that the restructuring has gone well, I think more investors will pile back into the stock.
Furthermore, the slump from last year means that the price-to-earnings ratio is only 17.17 (even with yesterday’s jump). For a tech giant, this is quite reasonable and gives them confidence to buy. It also means that the stock price can continue to rally without being overvalued. On that basis, I’m seriously considering adding some Meta stocks to my portfolio.
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