META Gapped Up 12% With Q1 Revenue Growth

META, formerly known as Facebook, Inc., is a leading social media and technology company that provides various products and services to users and advertisers worldwide. The company operates through two segments: Family of Apps and Reality Labs. The Family of Apps segment includes various mobile applications such as Facebook, Instagram, WhatsApp, and Messenger. The Reality Labs segment focuses on developing virtual and augmented reality products such as Oculus VR headsets.

META has been one of the best-performing mega-cap technology stocks in the market over the past year, and its recent Q1 earnings results and Q2 guidance have reinforced our bullish outlook on the company. Despite a challenging macroeconomic environment, META’s advertising revenue has continued to grow, and the company’s investments in the metaverse show that it is well-positioned to capitalize on the next wave of technological innovation.

What’s happening?

META has reported strong Q1 earnings, with revenue growth exceeding expectations and a positive outlook for Q2. The company’s advertising revenue for Q1 was $28.1bn, higher than the estimated $26.8bn. In addition, Q2 revenue guidance of $29.5 to $32bn suggests that the online advertising industry is turning a corner, reflecting a more upbeat outlook for the economy. While there was some disappointing news in the results, such as the slight decrease in headcount and the expected increase in operating loss for the Reality Labs segment, Meta’s shares surged by 12% in pre-market trading.

Future Growth Drivers

META’s growth prospects are primarily driven by two key factors: advertising revenue growth and the metaverse. META’s advertising business has shown resilience during the pandemic, and a strong recovery in recent quarter. The company’s focus on improving user engagement and targeting through the use of AI and other technologies should continue to drive advertising revenue growth over the long term.

The metaverse is the next frontier for META and represents a significant growth opportunity. The metaverse is a virtual world that connects people, places, and things in a seamless digital environment. META’s investments in virtual and augmented reality technologies, including the Oculus VR headset, suggest that the company is positioning itself to be a leader in the metaverse. META’s CEO, Mark Zuckerberg, has stated that he sees the metaverse as the “next generation of the internet,” and the company is expected to invest heavily in this area over the coming years.

Valuation

META currently trades at a forward P/E ratio of 29x, which is slightly higher than the S&P 500 average of 23x. However, given the company’s strong financial performance and growth prospects, we believe that META’s valuation is reasonable. Additionally, META has a strong balance sheet, which should provide the company with the financial flexibility to invest in growth opportunities.

Technical perspective

Meta’s stock price gapped higher to open above resistance at around 237.00, which was the closing level after a previous gap lower in January 2021. The next resistance level will be around 244. If Meta closes below 237, sellers may try to close the opening gap from the previous day. Nonetheless, the fact that Meta is currently trading above its 200 weekly Moving Average is seen as a bullish signal, and a weekly close above it would reinforce the uptrend.

Summary

META is a leading technology company with a strong track record of financial performance and a promising growth outlook. The company’s focus on advertising revenue growth and investments in the metaverse make it a compelling investment opportunity for investors with a long-term investment horizon. However, investors should monitor macroeconomic trends and potential regulatory risks, which could impact META’s financial performance and growth prospects.