For more than a year, Jim Cramer has been quite favorable about Meta Platforms, Inc. (NASDAQ: META). With the debate for the firm surrounding its capital expenditures, the CNBC TV host has stressed on multiple occasions that the spending is necessary to prevent encroachment on its social media moat. Recently, Meta Platforms, Inc. (NASDAQ: META) was in the news after it agreed to pay $18 billionin lawsuits with more than a trillion dollars in claims for underage social media use. With the shares showing little excitement following the development, Cramer couldn’t believe the market’s reaction and tweeted:
“Don’t want to go against the grain too much, but the actual settlement that Meta agreed to could turn out to be a lot less than people think and give it is over ten years it is NOT impactful versus what i thought could happen….it could have been disastrous. Instead it is barely material to earnings.”
While the CNBC TV host discussed the lawsuit, the central debate for Meta Platforms, Inc., like other mega cap stocks, is whether the AI spending will yield adequate returns. While, like its big tech peers, the firm is spending billions of dollars on AI infrastructure, unlike them, it does not have a standalone cloud computing business. Cramer has commented on multiple occasions that the firm could outsource some of its capacity to inject life into the stock.
With no cloud computing business, the focus is on Meta Platforms, Inc.’s advertisement business. On this front, the firm’s advertisement revenue grew by 27% annually to $59 billion in the second quarter. Additionally, its daily and monthly active people across its family of apps jumped by 7% and 6%, respectively. On the AI front, Meta Platforms, Inc.’s ad impressions and average price per ad jumped by 14% and 12%, respectively.
Yet, the growth is coming at a cost. In Q2, the firm’s earnings per share dropped by 13% annually and its operating margin dropped by 12 points to 31%. At the same time, Meta Platforms, Inc.’s capital expenditure jumped by 88% annually, while its free cash flow was decimated by 91%. With these strong dips, the bears are worried whether the firm can generate sufficient returns to justify the billions being diverted away from the bottom line.
Looking at hedge funds, in Q2, 254 out of 1,006 funds tracked by Insider Monkey held a stake in Meta Platforms, Inc.. The figure marked a drop over the 262 funds in Q1. The firm’s forward P/E ratio of 17.15 is lower than peers AMZN and GOOGL’s 23.87 and 22.82.
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