Meta's 'Goldilocks Quarter' Delights Analysts: 'This Is A Stock That Continues To Go Higher'

 Meta Platforms, Inc. META ticked all the boxes with its first-quarter results — with top and bottom lines as well as key operational metrics outperforming expectations. The stock reacted with a strong move to the upside in after-hours trading on Wednesday.

KeyBanc Bumps Up Price Target: Meta is now reaping the dual benefit of the effect of the aggressive cost cuts and accelerating ad revenue growth, KeyBanc Capital Markets analyst Justin Patterson said in a note. On a currency-neutral basis, ad revenue growth accelerated from 2% in the fourth quarter of 2022 to 7% in the first quarter of 2023, the analyst said. The improvement, according to the analyst, was due to investments in AI and products.

The analyst highlighted the following metrics in his review:

• Revenue at $28.7 billion, marked 6% year-over-year growth on a currency-neutral basis, also exceeding the 27.5 billion consensus estimate
• Earnings per share at $2.20, also exceeding Wall Street’s consensus of $2.01
• Daily active users at 2.03 billion, topping the 2.01-billion consensus

Patterson is also optimistic about performance going forward. The analyst expects ad revenue acceleration to continue as Meta iterates on product initiatives and markets like Europe recover.

The inflection is margin is also encouraging, the analyst said."Depending on the pace of Reels monetization (expected to be a more meaningful contributor by year-end or early 2024) and incremental investment rates, we believe there is increased potential for >$16 in EPS in 2024E," he said.

As such, the analyst raised his 2023 and 2024 revenue estimates by 3% and 2%, respectively, to $126 billion and $139 billion. He also upped his EPS estimates for the time periods by 21% and 20%, respectively, to $12.27 and $15.59. "We believe there is still potential for upside against this forecast, he said.

Patterson maintained an Overweight rating on Meta shares and increased the price target from $240 to $280, suggesting roughly 34% upside potential.

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‘Goldilocks Quarter:’  This was Meta's  Goldilocks quarter, said Wedbush analyst Daniel Ives on CNBC. "It's not just on the cost efficiency, it's about growth," he said.

Meta's digital advertising is stabilizing, the analyst said. The guidance was "really music to the ears of investors," he added.

"I think ultimately they’re talking to talk but now they’re actually walking the walk," Ives said, adding that this is a stock that continues to go higher.

Munster On DAUs: Deepwater Asset Management's Gene Munster noted that DAUs rose 4% year-over-year in the first quarter, accelerating from the 3.7% growth in the December quarter. The metric has been rising for four consecutive quarters now, he said.

Though the growth is small, the base is a massive 2 billion, which is about 35% of the active internet users are on a Meta product every day, Munster said.

Munster noted that the Street is modeling 11% revenue growth for 2024 and he expects analysts to bump up the revenue growth estimate to 15%, which though is below pre-pandemic levels in the mid-20% range, is a stable number.

Meta Price Action: In premarket trading on Thursday, Meta shares rallied 11.10% to $232.65, according to Benzinga Pro data.

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