Evercore ISI blames Meta stock selloff on 'very high expectations'

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Evercore ISI blames Meta stock selloff on 'very high expectations'
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META (NASDAQ: META ) Platforms Inc. reported financial results that exceeded analyst expectations for the latest quarter, with revenue climbing 27% year-over-year, operating income surpassing estimates by 4%, and earnings per share (EPS) coming in approximately 9% higher than anticipated.

Despite these strong results, META stock experienced a downturn in after-hours trading, dropping around 13%.

The after-hours selloff comes after the internet behemoth adjusted its capital expenditure forecast for the fiscal year 2024, increasing its range to $35 billion to $40 billion from the previous estimate of $30 billion to $37 billion.

This adjustment raises the midpoint by approximately $4 billion, or around 12%. Moreover, the company narrowed its total expenses projection to $96 billion to $99 billion from a prior range of $94 billion to $99 billion.

The revenue increase was slightly above Wall Street forecasts, with a 1% edge. Operating income, reflecting a 37.9% margin, also outperformed expectations. For the second quarter, META provided a revenue guidance range of $36.5 billion to $39 billion.

This projection suggests an 18% year-over-year growth at the midpoint, albeit slightly below the $37.8 billion anticipated by analysts. The high end of the guidance indicates a potential 22% year-over-year increase.

'Very high expectations' for META stock

According to Evercore ISI analysts, the after-market stock reaction is believed to reflect high investor expectations for META, which had seen a substantial year-to-date rally of approximately 40% prior to the earnings report.

According to the broker's analysis, the stock's ability to maintain its level would have required a clear "Beat & Raise" outcome, which did not materialize.

"Q2 guide suggests revenue would decel thru the year as comps get tougher," analysts said.

InvestingPro Insights

META Platforms Inc. continues to showcase its financial resilience and growth prospects, as reflected in its recent earnings report. To further understand the company's position, let's delve into some key metrics and insights from InvestingPro.

With a robust market capitalization of $1.25 trillion, META demonstrates the scale of its operations within the Interactive Media & Services industry. This is complemented by a considerable revenue growth of 15.69% over the last twelve months as of Q1 2023, indicating a strong upward trajectory in its financial performance. The company's gross profit margin stands impressively at 80.72%, highlighting its ability to maintain profitability amidst operational costs.

InvestingPro Tips for META indicate that the company holds more cash than debt on its balance sheet, which is a positive sign of financial stability. Furthermore, analysts have revised their earnings upwards for the upcoming period, signaling confidence in META's future performance. It's also worth noting that META is trading at a P/E ratio of 32.46, which, when compared to its near-term earnings growth, suggests that the stock may be undervalued.

For readers looking to delve deeper into META's financial health and prospects, there are an additional 15 InvestingPro Tips available, providing a comprehensive analysis of the company's performance and potential. Interested investors can access these insights and more with a subscription to InvestingPro. Be sure to use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.

These insights and data points serve to enrich the understanding of META's current market position and can help investors make more informed decisions when considering the company's stock for their portfolios.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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