Meta (Facebook)
The company will announce its 2024 third quarter earnings after the session today. Since the beginning of the year, the stock has been performing above the Nasdaq 100 (+21%), S&P 500 (+21.8%) & Magnificent Seven index (+47.8%) with a 71.32% premium. One reason for this positive divergence was the strong 22% increase in advertising revenue of $8.33 billion compared to the previous year. This performance underscores Meta's ability to innovate and gain market share in the competitive digital advertising market. In particular, the Application Family demonstrated the strength and profitability of Meta's core business by generating an operating income of $19.34 billion, up 47% compared to the previous year.
Meta's advances in artificial intelligence, especially through large language models and AI-powered advertising tools, provide improved ad targeting and efficiency. The integration of Meta Assistant, supported by these advanced AI models, into the application family helps to make money and extends ad formats beyond traditional methods. These innovations are expected to support Meta's competitiveness and revenue growth in the coming quarters.
I expect good figures from the names operating in the digital advertising market in the third quarter balance sheets. If there is no setback on the international side, the third quarter turnover figure will be announced above expectations. META has been continuing its double-digit turnover growth on its balance sheet since the first quarter of 2022.
It is the most expensive name among the magnificent seven stocks in terms of multiples. Its 12-month expected P/E (Price Earnings) ratio is also above the 5-year median. The 5-year median is 20.9x and its 12-month expected P/E is 29.2x
In summary; Being the best in terms of stock performance and relatively expensive multiples, its weight in the digital advertising market and my belief that this area will do well in the third quarter balance sheets, combined with the strategic investments it has made in artificial intelligence, positions the company for sustainable growth. Disciplined cost management, along with continued improvements in ad pricing and targeting, support a positive outlook for Meta’s stock price.
If things go as planned, we will see a new record close after the earnings report. Thursday could see a price hike of $625-$630. Risk factors: High stock price and US elections.
My comment: I don’t think the first one is a big deal. It is trading at fair value. I will only buy one day of trading due to the balance sheet effect. The US elections are important not only for META but also for the market as a whole.
MSFT (Microsoft)
The company will announce its third quarter 2024 earnings report after the session today. Since the beginning of the year, the stock has been performing below the Nasdaq 100 (+21%), S&P 500 (+21.8%) & the magnificent seven index (+47.8%) with a 16.47% premium. I attribute this negative divergence to the cloud revenue figures, which fell short of market expectations and were a bit disappointing.
Azure and other cloud services grew 30% year-over-year in line with estimates, while productivity and business processes and more personal computing segments exceeded expectations. Capital expenditures reflect Microsoft's significant investments in its infrastructure to support AI growth. The company's collaboration with Open AI and its integration of AI capabilities into products such as Azure and Office 365 underscore its commitment to innovation. The acquisition of Activision Blizzard has the potential to add $9-10 billion to annual sales by further strengthening the gaming portfolio. While Azure’s growth is likely to moderate in the near term, the long-term outlook remains positive due to the increasing adoption of AI and cloud services. Microsoft’s diversified product portfolio, from productivity software to games, offers multiple revenue streams and growth opportunities.
The post-session talks about Copilot revenues are also the part I am most curious about. Azure growth is expected to be flat. If there is a surprise here, it will be reflected very well in the stock price.
It is the expensive name among the magnificent seven stocks in terms of multiples. Its 12-month expected P/E (P/E) ratio is also above the 5-year median. The 5-year median is 20.9x and its 12-month expected P/E is 36.4x
In summary; Microsoft’s diversified product portfolio, from productivity software to games, offers multiple revenue streams and growth opportunities. When combined with its strategic investments in AI, it positions the company for sustainable growth. Azure growth is expected to be flat, which is a balance sheet expectation that does not excite me very much. If there is a surprise Azure growth or an unexpected increase in cloud systems, it may close above the 30-day moving average after the balance sheet. It may be priced in the $460 - $470 range on Thursday.
Risk factors: The stock price is high and the balance sheet expectations are flat. The first one is not a big problem in my opinion, it is traded at its fair value. I will only buy 1 day of trading due to the balance sheet effect. If the second part, which does not excite me, comes flat as expected, I think we will even see a small pullback.
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