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He Metaplatforms (NASDAQ:META) Share price fell in extended trading despite third-quarter earnings beating expectations. The stock fell 4% during the day and it looks like those losses will continue.
When higher profits and strong business performance lead to a lower price, the equation generally looks better for investors. Is this then a purchasing opportunity in Facebook’s parent company?
Profits
At first glance, Meta’s third-quarter earnings report looks solid across the board. Revenue was higher, costs were lower, and the number of users on its platforms increased across the board.
Particularly impressive was the company’s digital advertising growth. Compared to the 11% growth in AlphabetThe 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-reduction initiatives became evident. As a result, earnings per share more than doubled, from $1.64 to $4.39.
User numbers, a key part of the company’s value proposition to advertisers, also increased significantly. The number of daily and monthly users on Facebook and the broader family of apps increased.
Overall, 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 are stocks going down?
Uncertainty
Investors’ main concern is the lack of clarity over the next three months. While the last quarter has been strong, things look less clear going forward.
For the fourth quarter, Meta expects revenue of around $38.25 billion, below the $38.85 billion analysts were predicting. The company also expanded its guidance range, indicating additional uncertainty.
Management attributed this to geopolitical issues, specifically the conflict between Israel and Palestine. And the company noted that it already saw the effects during the first weeks of the fourth quarter.
In general, investors do not like uncertainty and especially when it suggests lower future profits. That’s why Meta’s share price is falling despite the good performance in the third quarter.
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 thinking that the headwinds in the fourth quarter are probably short-term in nature. Therefore, a significant drop in the share price on this basis does not seem justified to me.
Despite this, I am not convinced that it is a good time to buy shares in MetaPlataformas. The company is doing well, but a price-earnings ratio (P/E) above 30 seems to me to explain it.
A year ago, shares hit $94 and investor sentiment was largely pessimistic. That, in my opinion, was the time to consider investing in stocks.
The story today is quite different. Despite some short-term issues, many investors are still willing to pay a premium valuation for Meta stock. But right now I’m looking for opportunities elsewhere.
