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Meta Platforms (META) is arguably the best Magnificent Seven stock right now and presents a buying opportunity, in my view. The social media company’s ad revenue and user base continue to grow, and the valuation leaves plenty of room for error. The recent earnings report and long-term performance make me bullish on the stock.

Net Income Surges Without Job Cuts

Meta Platforms’ net income has been soaring in recent quarters, which has prompted the social media giant to offer its first quarterly dividend this year. Profits continued in that direction, with a 73% year-over-year increase in the second quarter.

Efficiency has been a key contributor to the company’s rising profits. That’s code for firing more employees, but significant cuts weren’t present in this quarter. While Q1 2024 featured a 10% year-over-year decline in headcount, the second quarter only saw a 1% year-over-year decline in this area.

Meta Platforms’ ability to retain workers while delivering robust net income growth can position it well in the future. A downside to firing many workers is the loss of talent and the difficulties of replacing people who left. Seeing that downside less present in the second quarter while net income continued to soar is an encouraging development.

Daily Active Users Continue to Increase

Facebook, Instagram, and WhatsApp are three of the top social media platforms — all owned by Meta. Even though these platforms are well-known, they continue to attract new users. Meta Platforms reported a 7% year-over-year increase in daily active users across its family of apps. As a result of high user growth, the company closed out the quarter with 3.27 billion daily active users.

A rising user base allows Meta Platforms to provide more ad placements for corporations, small businesses, and influencers. Those extra ad spots can help Meta Platforms deliver elevated revenue growth for several years.

A Good Valuation

A stock’s valuation is a key component of the analysis after considering the fundamentals. Meta Platforms certainly delivers with a 27.5x P/E ratio. There are many companies with a similar valuation that aren’t delivering 73% year-over-year net income growth for their investors.

Alphabet (GOOG) (GOOGL) is the only Magnificent Seven stock that trades at a lower valuation, and its year-over-year net income growth pales in comparison to Meta Platforms. Furthermore, Facebook’s parent company should continue to benefit from rising revenue and profits, which should bring down the P/E ratio even more.

It’s also good to note that Meta Platforms’ net income growth has outpaced its year-to-date stock gains. Meta Platforms stock is up 49% year-to-date , which is supported by rising profits.

A Dividend Growth Story in the Works

Meta Platforms isn’t only catering to growth investors. The company’s recent dividend program now makes it an appealing pick for dividend growth investors. While Meta Platforms only has a 0.37% yield, it has the financial growth and cash position to support an annualized double-digit dividend growth rate for many years.

For instance, Meta Platforms closed out the quarter with $58.08 billion in cash. It has plenty of resources to support dividend hikes over time, but Meta Platforms doesn’t even have to tap into those reserves for the dividend program.

The company distributed $1.27 billion to its investors as dividend payments this quarter. During the same quarter, Meta Platforms allocated $6.32 billion toward its stock buyback. Shifting some of the buyback funds to dividend distributions is sufficient to hike the dividend by at least 10% per year for several years, but it’s better for tax purposes that the capital goes toward stock buybacks.

While we’ve covered Meta Platforms’ net income growth rate, the company’s total GAAP profit came in at $13.5 billion this quarter. That’s enough cash to support elevated dividends in the years ahead. Thus, Meta Platforms has the making of a dividend growth stock that outperforms the market while raising its dividend considerably over the years. That setup should attract many dividend investors as it becomes more apparent.

Is META Stock a Buy, According to Analysts?

Meta Platforms is currently rated as a Strong Buy on TipRanks based on 24 Buys, two Holds, and two Sell ratings assigned in the past three months. The average META stock price target suggests 4.2% upside from current levels, but that’s a reflection of Meta Platforms’ recent stock gains. The highest price target of $645 per share, which was assigned today, suggests that the stock can gain an additional 22% from current levels.

See more META analyst ratings

The Bottom Line on Meta Platforms Stock

Meta Platforms has delivered incredible revenue and net income growth for its investors in recent quarters. Further, expanding profit margins have trimmed the stock’s P/E ratio, even as it has continued to outperform the market. Additionally, Meta Platforms continues to grow its user base, which will support higher revenue in the future.

It was encouraging to see Meta Platforms grow its net income by 73% year-over-year while retaining most of its employees. It’s a sign that the company doesn’t have to rely on job cuts to generate more profits. Many analysts believe Meta Platforms can continue to deliver gains for long-term investors, and I am in agreement with them.

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