Shares in Meta Platforms (NASDAQ:META) were up around 8% in extended trading after the company’s earnings report on 26 July. That extends a gain of 140% since the start of the year.
The stock is obviously much more expensive than it was a few months ago, but it’s still some way short of its record highs. So is it too late to buy shares in Meta Platforms?
Strong earnings
There’s no two ways about it, Meta’s earnings report was strong across the board. The company posted revenue growth of 11% and earnings per share growth of 21%.
The report was strong in other areas too. Across the board, the number of users on Meta’s apps – which account for all of its profits – increased.
By themselves, these are impressive results. But they’re especially significant in the broader context of Meta’s recent history.
This time last year, the company reported declining revenues and lower monthly users on Facebook. As a result, the stock fell sharply.
Since then, Meta has been working to show investors this was a one-off. And yesterday’s results go some way towards demonstrating this.
Metaverse
Despite this, there’s one big elephant in the room. Reality Labs, which houses the company’s metaverse operations, is still losing money.
Specifically, it lost 33% more during the last three months than it did during the second quarter of 2022. And there’s no real sign of this ending.
CEO Mark Zuckerberg announced plans to continue with Meta’s ‘Year of Efficiency’. But that doesn’t seem to include its metaverse plans.
Losses in the Reality Labs division are expected to increase in 2024. The company is continuing to build out its product offering and ecosystem and is prepared to put up the cash to achieve this.
It seems, though, that those future losses sit much better with investors when things are going well elsewhere in the business. That’s why the stock was up in extended trading after yesterday’s results.
A stock to buy?
At today’s prices, Meta trades at a price-to-earnings (P/E) ratio of around 38. The company clearly has a lot going for it, but this looks like a lot to me.
The question for investors has been the same for some time now. Can the company’s social media platforms do enough to offset the metaverse losses and provide a good enough investment return?
I’m not sure – the company is doing a good job and has a several products on the way. But the more the stock goes up, the more challenging the equation becomes from an investment perspective.
When the share price was $128, I had confidence the advertising business could offset the metaverse costs. But at $300, I’m not so sure this is the case.
Everyone else seems to have made peace with the company’s metaverse losses. But I haven’t, so I’m keeping the stock on my watchlist and moving on to other opportunities.
