The Meta Platforms (NASDAQ:META) share price fell in extended trading despite Q3 earnings coming in ahead of expectations. The stock fell 4% during the day and those losses look set to continue.
When higher earnings and strong business performance lead to a lower price tag, the equation generally looks better for investors. So is this a buying opportunity in Facebook’s parent company?
Earnings
At first sight, Meta’s earnings report from Q3 looks strong across the board. Revenues were higher, costs were lower, and the number of users on its platforms was up across the board.
The growth in the company’s digital advertising was particularly impressive. Compared with 11% growth at Alphabet, the Family of Apps division reported a 23% increase in top-line sales.
Profitability was also boosted by wider margins as the effects of Meta’s cost-cutting initiatives are showing through. As a result, earnings per share more than doubled from $1.64 to $4.39.
User numbers – a core part of the company’s value proposition to advertisers – also came in strong. The number of daily and monthly users on Facebook and the broader Family of Apps was up.
In general, the report was an indication that the business is in a strong position and has good capacity for future profitability. So, the obvious question, is why is the stock going down?
Uncertainty
The main concern for investors is lack of clarity over the next three months. While the last quarter has been strong, things look less clear going forward.
For Q4, Meta is expecting revenues of around $38.25bn, below the $38.85bn analysts were predicting. The company also widened its range of guidance, indicating extra uncertainty.
Management attributed this to the geopolitical issues – specifically, the Israel-Palestine conflict. And the company noted that it has already seen the effects during the first few weeks of Q4.
In general, investors dislike uncertainty and they especially dislike it when it suggests lower future earnings. That’s why the Meta share price is slipping despite a strong performance in Q3.
Higher earnings and a lower share price mean better value for investors. So could this be a buying opportunity?
A stock to buy?
I think there’s a good line of thought that says the headwinds in Q4 are likely to be short-term in nature. So a significant fall in the share price on that basis seems unjustified to me.
Despite this, I’m not convinced this is a great time to buy shares in Meta Platforms. The company is doing well, but a price-to-earnings (P/E) ratio above 30 looks to me like it already accounts for this.
A year ago, the stock hit $94 and investor sentiment was mostly pessimistic. That, to my mind, was the time to consider investing in the stock.
The story today is quite different. Despite some short-term issues, many investors are still happy to pay a premium valuation for Meta shares. But I’m looking elsewhere for opportunities at the moment.
The post After a strong Q3 earnings report, why is the Meta Platforms share price falling? appeared first on The Motley Fool UK.
Pound coins for sale — 51 pence?
This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
See the full investment case
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Alphabet and Meta Platforms. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
