Why investors are feeling the love for Meta again

Everyone you know under the age of 40 may have logged off Facebook years ago, but that’s not doing anything to slow down parent company Meta’s surging stock.

What happened: Share prices in Meta — which owns Facebook, Instagram, and Whatsapp — jumped more than 20% last week after an earnings announcement that had investors smashing the “Like” button. 

  • Not only did Meta issue its first-ever dividend and authorize US$50 billion of share buybacks, it also reported a healthy rebound in its ad business, which grew 16% last year.

  • Meta said its generative AI tools had improved the effectiveness of its ad platform, helping overcome changes made by Apple in 2022 that limited its ability to target ads based on user data. 

Why it matters: Despite intense scrutiny from US regulators and some questionable bets on VR that have yet to bear fruit, Meta’s position as one of the most important (and valuable) global tech companies appears secure. 

  • The latest results allow “investors to put prior questions around platform strength behind us,” one Goldman Sachs analyst said.

Yes, but: Meta still faces risks to its core advertising business that could undermine its valuation, which has grown by nearly US$1 trillion since late 2022.

  • One of the big question marks that may have flown under the radar last week: China, which Meta said accounted for 10% of its total ad revenue, likely driven by Chinese e-commerce brands like Temu and Shein.

  • Those brands are aggressively pushing into North American markets through massive ad budgets that are likely to shrink in the future once they have established a stronger presence.

Zoom out: Performance of the bucket of big tech stocks dubbed “The Magnificent Seven” have diverged this year, with Nvidia, Meta, Microsoft, and Amazon continuing their rise, while the fortunes of Tesla, Alphabet, and Apple have waned.—TS