Meta Platforms Inc-A：2Q24 earnings beat; intact FY24 earnings growth outlook despite AI investment

Investment Rating - Maintain BUY rating with a target price of US $565.0 based on 27x FY24 PE [1][3] Core Views - Meta's 2Q24 earnings beat consensus estimates with total revenue increasing by 22% YoY to US$ 39.1bn and net income growing by 73% YoY to US $13.5bn [1] - Management expects 3Q24 revenue to grow by 13-20% YoY to US$ 38.5-41.0bn, in line with consensus estimates [1] - FY24 full-year total expenses guidance remains unchanged at US $96-99bn, easing investor concerns on margin expansion [1] - Meta's ad business maintained solid growth with Family of Apps' ad revenue increasing by 22% YoY to US$ 38.3bn in 2Q24 [1] - Meta AI is on track to become the most used AI assistant by end-FY24, with billions of queries since its launch [1] - Operating profit margin (OPM) expanded by 9ppt YoY to 38.0% in 2Q24, driven by efficiency gains [1] Financial Performance - FY24E revenue is forecasted at US $159.7bn, with a net profit of US$ 53.1bn [2][11] - FY24E EPS is projected at US $20.93, representing a 4.6% increase from previous estimates [11] - Gross margin is expected to remain stable at 81.0% for FY24E, while operating margin is forecasted to expand to 38.6% [11] - Net income CAGR is projected at 21% over FY24-26E [1] Ad Business - Total number of ad impressions and average price per ad both grew by 10% YoY in 2Q24, driven by enhanced user engagement and improved ad performance [1] - Meta launched a full-screen video player and unified video recommendation systems, increasing engagement on Reels and creating opportunities for ad inventory growth [1] - US advertisers saw a 22% higher ROI after adopting Advantage+ Shopping campaigns [1] AI Initiatives - Meta AI has received billions of queries since its launch and is expected to become the most used AI assistant by end-FY24 [1] - Meta launched AI Studio, enabling millions of creators to create their own AI agents, which is expected to improve user experience and create monetization opportunities [1] Capex and Margin Outlook - FY24 capex guidance has been raised to US$ 37-40bn, representing a 36-47% YoY increase [1] - Significant capex growth is expected in FY25 to support AI development [1] - OPM expansion is expected to slow down meaningfully from FY25 onward [1] Valuation - Meta is valued at US$565.0 per share based on 27x FY24E P/E, reflecting its strong leadership in the global social media space [3] - The current valuation of 20x FY25E PE remains attractive [1]