On Thursday, JPMorgan (NYSE:JPM) adjusted its expectations for Meta Platforms Inc. (NASDAQ: NASDAQ:META) shares, reducing the price target to $480 from the previous $535, while maintaining an Overweight rating.
The adjustment follows Meta's shares falling by 15% in after-market trading due to first-quarter revenue and the second-quarter outlook falling slightly short of expectations. Additionally, the company projected increased total expenses and capital expenditures for 2024, primarily driven by heightened investments in artificial intelligence (AI).
Meta's recent financial performance has instigated a more cautious perspective from Wall Street, particularly as the company approaches a period with challenging comparisons.
This caution is partly due to Meta's acknowledgment of facing tough comps, including the lapping of substantial China advertiser spending, the monetization ramp of Reels, and strong engagement tailwinds from the previous year. Despite these headwinds, Meta has expressed greater optimism and ambition in the AI space, aspiring to become a global leader in the technology.
The company's confidence is buoyed by its success with Llama 3 and Meta AI, which has emboldened its management to invest heavily in infrastructure to support the training of next-generation large foundational models. This move is seen as preparation for a multi-year capacity ramp.
However, comparisons to the scaling periods of other Meta products, such as Reels, Stories, and the transition to mobile, may raise concerns among investors about the timeline and returns of these new investments.
Reflecting on the first-quarter earnings report, JPMorgan has revised its revenue estimates for Meta downwards by 2% for 2024 and 4% for 2025. The firm also adjusted its GAAP EPS projections, decreasing them by 6% and 9% to just over $20 and $22, respectively. The firm anticipates a 13% reduction in free cash flow (FCF) estimates for both 2024 and 2025, settling at $45.7 billion and $49.4 billion.
Despite the increased expenditure, JPMorgan projects that Meta will still achieve double-digit revenue and EPS growth in 2025 and 2026. The firm's confidence in Meta's ability to generate returns on its heightened spending is rooted in the company's proven track record. The new price target of $480 is based on 21.5 times JPMorgan's estimated 2025 GAAP EPS of $22.24.
InvestingPro Insights
As Meta Platforms Inc. (NASDAQ: META) navigates through its investment phase in artificial intelligence, real-time metrics and InvestingPro Tips provide a broader context for its financial standing and market position. According to InvestingPro data, Meta boasts a formidable market capitalization of $1.25 trillion. The company is trading at a P/E ratio of 29.8 based on the last twelve months as of Q4 2023, which aligns with the industry's competitive landscape. Additionally, Meta's revenue growth of 15.69% over the same period underscores its capacity for expansion amidst strategic pivots.
InvestingPro Tips highlight that Meta holds more cash than debt on its balance sheet, which is a reassuring sign for investors concerned about the company's spending on AI. Moreover, 11 analysts have revised their earnings upwards for the upcoming period, reflecting a positive sentiment on Meta's future performance. For investors looking to delve deeper into Meta's prospects, there are 15 additional InvestingPro Tips available, offering a comprehensive analysis of the company's financial health and market potential.
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