After Meta Platforms, Inc. (NASDAQ:META) settled with state attorneys general in a lawsuit targeting underage social media use, Cramer continues to assert that the deal is a major win for the firm. His thoughts are unsurprising since the firm was targeted by claims that exceeded a trillion dollars. On the other hand, Meta Platforms, Inc. was able to reach a deal that required the firm to pay $18 billion instead. On his morning appearance on the 18th, Cramer continued to assert that the stock was inexpensive:
“There were eight different news organizations that said that attorney general thing was a bad loss for Meta. There’s been no real increase in lawsuits, that stock’s up a 140 points since then. . .I think it can, it’s still inexpensive and this news has taken the country by storm.”
Meta isn’t the only stock that Jim Cramer likes, as you’ll see when you read 10 Blue Chip Stocks Jim Cramer is Crazy About, Since his remarks, the stock is up by 16.8%.
With advertising revenue accounting for 97% of its sales in the second quarter, for Meta, the driver of the hypothesis is its advertising revenue. On this front, Cramer’s optimism might be warranted if we look at CEO Mark Zuckerberg’s comments during the second quarter earnings call. During the call, Zuckerberg remarked that by relying on the Meta Generative Recommender, an LLM platform, the firm “generated an 8.3% increase in ad clicks and a 15.7% uplift in conversions on Facebook.” Zuckerberg added that his firm’s Advantage Plus AI campaign optimization tool enabled a brand to achieve “13% incremental lift in purchases and a 16% increase in add-to-cart conversions” while overall Advantage Plus saw a $75 billion revenue run rate.
These metrics are important since Meta is spending heavily on AI. During Q2, the firm’s free cash flow sank by 91% to $784 million while its capital expenditure surged to $31.1 billion. The hefty spending, which indicates an all-in approach to AI, raises the stakes for Meta to monetize AI or risk investor ire. As for Cramer, he has previously defended the firm’s spending by commenting that it had to spend in order to defend moat enroachment from OpenAI.
Looking at Meta’s valuation, the stock trades at a forward P/E ratio of 22, which is roughly in line with Google parent Alphabet’s 21.78. Short interest as a percentage of float at 1.31%, while Alphabet’s is negligible. As for hedge fund sentiment, 254 funds had disclosed a stake in Meta in Q2, which marked a drop from the 262 in Q1.
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