Meta Platforms, Inc. (NASDAQ:META) was in the news this week after the firm managed to keep a major headwind at bay. The firm had been facing legal action for its social media platforms and youth usage. On this front, the firm reached an agreement with nearly all states through which it agreed to pay up to $16.7billion over the next decade for the claims. With the claims having lingered around the $1.4 trillion mark before the settlement, Cramer was surprised that the shares didn’t end up higher, as he commented in a series of tweets:
“Meta was looking at a trillion; betting like was $200 billion and big restrictions: final is $12.6b and no onerous restrictions
Meta goes negative: this is one hated stock.. i mean like despised. The big existential loss is off the table; the plaintiffs bar likely to fold.. This was a huge win. Shocked it doesn’t matter
It is important to note that when Meta doesn’t react to something they will owe $1.3 Billion a year–drop in the bucket–instead of $100 billion a year–and it doesn’t matter, that stock is considered odious”
While the social media lawsuits were eye catching due to the value of the claims, the central debate for Meta Platforms, Inc. (NASDAQ:META) revolves around the firm’s hefty AI spending and its impact on its core advertising business. On this front, the clearest data came in the form of the firm’s second quarter earnings. The results saw the firm’s advertising revenue touch $45 billion in revenue fueled by an 11% jump in ad impressions for its Family of Apps and a 7% jump in price-per-ad. Additionally, on July 29th, Meta Platforms, Inc. (NASDAQ:META)’s CEO Mark Zuckerberg claimed that recommendations driven by AI had led to a 24% jump in users’ time spent watching reels on Instagram.
Yet, while the growth was impressive, so were the costs. During the quarter, Meta Platforms, Inc. (NASDAQ:META)’s free cash flow sank by 91% annually to $784 million on the back of its capital expenditures surging to $31 billion. As a result, the firm’s capital expenditure sat at 50% of revenue to raise concerns about the pace of spending outstripping the pace of returns. The fact that Meta Platforms, Inc. (NASDAQ:META) also missed analyst EPS estimates and reported an 8% operating income drop also raise concerns about high costs stemming from severance.
In Q2, 254 hedge funds tracked by Insider Monkey had held a stake in Meta Platforms, Inc. (NASDAQ:META) which marked a drop over the 262 funds in Q1. Among the exits were Two Sigma Advisors and Third Point. The firm’s forward P/E ratio of 19.27 is also higher than SNAP’s 10.53, while shares as a percentage of float is 1.53%.
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Disclosure: None.
