1) Two of my longtime favorite stocks, Alphabet (GOOGL) and Meta Platforms (META), reported third-quarter earnings yesterday after the market closed. So let's take a look at how they performed, starting with Alphabet...
I named the Google, YouTube, and Waymo parent company as a core holding in my old firm Empire Financial Research's first newsletter on April 17, 2019.
Since then, through yesterday's close, it's up 346% versus 137% for the S&P 500 Index.
I've been pounding the table on it especially hard this year (archive here), which has been a great call... Year to date, the stock is up 45% through yesterday's close versus 18% for the S&P 500. And it jumped as much as 6% this morning.
Now let's dive into its earnings... (You can see the full release here and the slide presentation here.)
The company reported $102.3 billion in revenue – up 16% year over year ("YOY") and beating estimates of $100 billion. Google Cloud revenue was $15.2 billion, up a robust 34% YOY versus last quarter's 32% growth.
At 19%, total costs and expenses grew slightly faster than revenues. So operating margins fell slightly to 31%.
The company made $55.8 billion worth of share repurchases in the past 12 months. As a result, diluted shares declined 1.7%.
Earnings per share ("EPS") came in at $2.87, up an outstanding 35% YOY. That handily beat estimates of $2.26.
With trailing-12-month revenue of $385 billion, it's astounding that a company of this size can keep growing so quickly and profitably.
Finally, let's look at Alphabet's current valuation...
The stock opened around $292 this morning, and its 2025 earnings estimate is $10.53 per share (the $9.92 estimate coming into earnings, plus the $0.61 beat). That means its price-to-earnings (P/E) multiple is 27.7 times.
That's higher than it has been in a while thanks to the huge run-up this year. But it's still only a modest premium to the S&P 500's 22 times to 24 times forward multiple today (depending on whose estimates you use).
My view today is still the same as it has been for more than six years: Alphabet is a great stock for conservative, long-term-oriented investors.
2) I've also consistently been bullish on Meta Platforms since I named it as a core holding the same day as Alphabet. Since then, through yesterday's close, it's up 320% versus 137% for the S&P 500.
The company reported incredible numbers, but the stock fell as much as 14% this morning. (You can see the company's full release here and slide presentation here.)
Revenue grew 26% YOY, driven in part by daily-active-user growth of 8% YOY. That means Meta's family of apps (Facebook, Instagram, etc.) has 3.54 billion daily active users.
Meta also fed these users more advertisements, as measured by "ad impressions delivered," which grew 14% YOY. That's a modest jump from the 11% growth last quarter.
The company was also able to charge a 10% higher average price per ad than the same period last year.
This chart from the presentation shows Meta's strong revenue growth over the past two years:
However, costs and expenses rose 32% YOY, faster than the 26% revenue growth. That means expenses as a percentage of revenue rose somewhat from previous quarters:
As a result, operating income "only" grew 18%.
Net income was impacted by a one-time, noncash income-tax charge of $15.9 billion. Excluding this, diluted EPS would have risen 17% to $7.25, handily beating estimates of $6.71.
Meanwhile, capital expenditures ("capex") more than doubled from $8.3 billion to $19.4 billion YOY. And management expects 2025 capex to be between $70 billion and $72 billion.
I also believe management's guidance for fourth-quarter revenue will prove to be conservative, between $56 billion and $59 billion.
For more insight, I reached out to an old friend who knows the company better than just about anyone. I most recently reached out to him for Meta's second-quarter earnings.
He e-mailed me back with permission to share his thoughts here:
It's simple: this was an awesome quarter. Meta generated a positive return on its investments to grow its existing businesses, while simultaneously building "greenfield" tech for future yet-to-be-defined products and innovation. It's a two-fer with no downside...
This isn't the first time that Meta has had a third-quarter earnings call that investors (incorrectly) reacted negatively to. But anyone who stayed on as a long-term shareholder has been richly rewarded.
He continued, citing CEO Mark Zuckerberg's investing decisions:
At this point you have to give Zuckerberg some credit. He isn't a crazy lunatic squandering shareholder value. In fact he's the opposite. And he knows the game plan – it's tried and tested.
Of course there is some risk that no great businesses emerge from the huge investments Meta is making, but Zuckerberg's track record and the quality of this extraordinary global business say otherwise.
He concluded:
The market's short-term myopia has provided another great buying opportunity. Back up the truck...
Thank you for the insight, my friend!
Finally, that brings us to Meta's current valuation...
Opening around $669 per share this morning, the stock is trading at about 23.7 times the consensus 2025 EPS estimate of $28.17 (coming into the earnings report).
That's in line with the S&P 500's forward multiple of 22 times to 24 times.
That means one of the greatest businesses of all time, growing revenues and earnings north of 20%, trades at multiple near that of the average large U.S. business. It makes no sense.
Putting this all together, including the stock's dip this morning, I still think the stock looks like a buy.
3) Another one of my favorites, Amazon (AMZN), reports earnings today after market close. And I expect a blowout quarter for reasons my friend and New York University marketing professor, Scott Galloway, highlighted in his recent Prof G podcast, which you can watch here.
I'll cover Amazon's earnings report in tomorrow's daily.
4) As part of my final training for the New York City Marathon on Sunday, I jogged an easy 6 miles yesterday morning in Central Park with my "Whitney and the ladies" running group.
We met on the marathon course at 102nd and 5th, then ran the last 3 miles to the finish line. But it won't be as easy on Sunday!
Four of us in the picture below will be running: me, Katie (next to me), Jess (in the center wearing the Yosemite shirt – her first marathon!), and Sarah (in the hoodie). Our coach Alan Bautista (in blue) is going to run with me from miles 18 to 24:
Best regards,
Whitney
P.S. I welcome your feedback – send me an e-mail by clicking here.