META Starts Testing Community Notes: Should You Taste the Stock?
March 18, 2025
Meta Platforms META is beginning to test its previously announced Community Notes from today. The program replaces its third-party fact-checking program in the United States to promote more free speech across its platforms, Facebook, Instagram and Threads.
META’s decision to loosen control over content monitoring is expected to boost user engagement. In the fourth quarter of 2024, the daily active user base continued to grow across Facebook, Instagram and WhatsApp on a year-over-year basis, both globally and in the United States, reflecting strong engagement levels.
Global video time grew at a double-digit percentage on a year-over-year basis on Instagram. Video time spent on Facebook in the United States also increased at a double-digit rate. AI-driven ranking system has been responsible for this growth rate, which Meta Platforms expects will continue in 2025.
However, does improving user engagement make META a tasty treat for investors? Let’s dig deep to find out.
Meta Platforms’ focus on leveraging AI to improve user engagement has been a key catalyst. AI is heavily dependent on data, of which META has a trove, driven by its more than 3.35 billion daily users. Its staggering reach makes META one of the most important players in the digital ad sales market, alongside Alphabet GOOGL.
Higher advertising revenues have been a key catalyst in driving META shares. Year to date, shares have surged 21.8%, outperforming the Zacks Internet Software industry’s return of 9.3% and the Zacks Computer & Technology sector’s return of 8.5% over the same time frame. The momentum in advertising revenues has also helped META outperform its peers, including YouTube-parent Alphabet and Snap SNAP. Shares of Alphabet have returned 11.3%, while Snap has declined 18.7% over the same timeframe.
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Meta AI usage continues to increase, with more than 700 million monthly actives. The company’s initiative to add updates that will help Meta AI deliver more personalized and relevant responses is expected to boost engagement.
Meta Platforms focuses on improving advertisers’ return on ad spending. META is leveraging its proprietary machine learning system, Andromeda, for retrieval in ad recommendation. The system is powered by NVIDIA’s NVDA Grace Hopper Superchip and Meta Training and Inference Accelerator hardware. The retrieval stage processes tens of millions of ads into a few thousand relevant ads, which are further processed by sophisticated ranking models to determine the final ads to be shown on its platforms.
Andromeda improves the performance of the company’s advertising system by delivering more personalized advertisements to viewers. The deployment of META’s deep neural network on the NVIDIA Grace Hopper Superchip across Instagram and Facebook applications has achieved more than 6% recall improvement to the retrieval system while delivering over 8% ad quality improvement on selected segments.
META’s plan to reduce bias through the Community Program is expected to further boost engagement. Currently, 200,000 contributors have signed up for the program in the United States, with a growing waiting list from which META will select contributors randomly and gradually.
META plans to take some time in testing the system and is in no hurry to make the notes appear on content right now. The company has laid some basic rules for a user to be a contributor that includes age over 18 years and an account that is more than six months old with either a verified phone number or enrollment in two-factor authentication. Community notes will have a limit of 500 characters, and contributors need to include a link to support the note.
META is leveraging X’s open-source algorithm as the basis of its rating system. The system will consider “each contributor’s rating history and evaluate which contributors normally disagree.”
The Zacks Consensus Estimate for first-quarter 2025 earnings is pegged at $5.60 per share, down by a penny over the past 30 days, indicating an 18.9% year-over-year increase.
META’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters, the average surprise being 13.77%.
Meta Platforms, Inc. price-consensus-chart | Meta Platforms, Inc. Quote
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
META stock is not so cheap, as the Value Score of C suggests a stretched valuation at this moment.
In terms of the forward 12-month Price/Sales, META is trading at 7.9X, higher than its median of 7.83X and the broader sector’s 5.81X.
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AI usage is making META a popular name among advertisers as well as users. However, Meta Platforms’ first-quarter 2025 results are expected to suffer from unfavorable forex (3% headwind to total revenue growth on a year-over-year basis).
Operating expenses are expected in the $114-$119 billion range with headcount expected to increase within infrastructure, monetization, Reality Labs, Generative AI, regulations and compliance. Regulatory concerns in the United States and Europe make the stock a risky bet.
META is spending hugely on expanding AI infrastructure. For 2025, capital expenditure is expected between $60 billion and $65 billion, driven by its Gen AI initiatives and core business.
Although this bodes well for the company’s longer-term prospects, we believe the lack of monetization of new platforms like Threads is a concern. META plans to introduce ads on Threads gradually and doesn’t expect it to be a meaningful driver of overall impression or revenue growth in 2025.
META shares are trading below the 50-day moving average, indicating a bearish trend.
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META currently has a Zacks Rank #3 (Hold), which implies that investors should wait for a more favorable point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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