- Meta Platforms is currently focusing on monetizing engagement, as revenue per ad impression has increased over the past quarters.
- Successful AI monetization from the previous capex cycle in FY2021 has significantly boosted advertising revenue and margins.
- META is entering another capex cycle to strengthen its AI innovation in FY2024, forecasting a 40.5% YoY growth in capex and a 380-bps YoY increase in capex % of revenue.
- Despite significant capex increases, Meta’s FCF profile is expected to remain resilient, supported by significant growth in OCF.
- The stock is currently trading at 26.9x non-GAAP forward P/E and 1.47x non-GAAP forward PEG, making it the second cheapest stock in the “Magnificent 7” after Google.
Investment Thesis
Despite rallying 56% YTD, Meta Platforms (NASDAQ:META) remains relatively cheap among the “Magnificent 7” group. The company has heavily invested in Generative AI, resulting in successful AI monetization that has significantly boosted advertising revenue and margins. In my previous article from July 2023, I maintained a buy rating on the stock, due to its attractive valuation and substantial improvement in its FCF profile. Since then, the stock has achieved a 66% return, significantly ahead of the 21% return of the S&P 500.
In 1Q FY2024, Meta achieved a 75% YoY growth in FCF, following over 100% YoY growth in the previous three quarters. Currently trading at 26.9x non-GAAP forward P/E, I believe META still has plenty of room to expand its valuation multiple. Therefore, I reiterate a buy rating on the stock, as another capex cycle in FY2024 is expected to further accelerate its growth trajectory.
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