How High Can Meta Stock Go?

Facebook parent company Meta Platforms (NASDAQ:META) shocked the investment world in late October when its Q3 earnings came in 21.3 percent above the analyst consensus estimate.

With the social media giant suddenly attracting much more investor interest, it’s time to revisit the company’s performance and prospects to see how high Meta shares may eventually go.

Meta Ad Impressions Soar By 31%

In Q3, Meta reported $34.14 billion in revenue, up 23 percent from the same quarter in 2022. Perhaps even more importantly, the company also saw a 7 percent reduction in its overall expenses, which fell to $20.40 billion. Net income was $11.58 billion, an impressive jump of 164 percent from the year-ago quarter.

Much of Meta’s revenue growth was driven by a significant increase in ad traffic. Total ad impressions increased 31 percent year-over-year, though the company did see a 6 percent reduction in the average price per ad.

This increase in ad delivery coincided with a 7 percent increase in monthly active users across Meta’s family of platforms to 3.96 billion. Between sustained user growth and a proven ability to increase ad delivery, Meta has shown that it still has a roadmap for overall business growth as it matures.

The recent report marked a crucial turning point for investors as Meta emerges from a period of negative growth that kicked in during the 2020-21 era.

The Q3 report saw the fastest rate of revenue growth since 2021 and the fastest earnings growth since 2015. This trend suggests that Meta is capable of operating successfully in a more challenging macro environment defined by higher interest rates and inflationary pressures.

Looking down the road, Meta’s earnings are expected to grow at a compounded rate of about 19.6 percent over the coming five years. Using the most recent full year’s earnings of $11.33 as a baseline, this would put Meta’s annual EPS at about $27.70 in five years.

Meta has also succeeded in maintaining a very respectable level of profitability as it recovers from its turn-of-the-decade doldrums. Over the last 12 months, total net margin was reported at 23.4 percent, while return on equity came in at an impressive 26.4 percent.

Meta Target Price & Valuation

The median 12-month analyst price forecast for Meta shares is $380, 25.4 percent above the most recent price of $307.06. In line with this highly positive forecast, the stock also enjoys a strong consensus rating of buy. Of the 59 analysts covering Meta, 46 have rated the stock as a buy.

Meta’s valuation metrics are also attractive for a company that is still growing quite quickly. At 21.3 times forward earnings and 22.2 times cash flow, Meta’s key value metrics are roughly in line with the broader market and relatively low for a dominant tech company.

With a price-to-earnings-growth ratio of 1.0, Meta shares are also priced very fairly to the company’s near-term expected earnings growth rate.

Because Meta is one of a handful of high-profile tech titans, it’s worth comparing the company’s valuation to some of its peers.

Amazon, for instance, trades at more than 50 times forward earnings and 1.7 times expected earnings growth.

Alphabet, meanwhile, trades closer to Meta at 21.7 times forward earnings but is still priced at a higher price-to-earnings-growth ratio of 1.4. As such, Meta appears to be a decent value among the notable FAANG stocks at the moment.

How High Could Meta Eventually Go?

Using the 5-year earnings growth projections mentioned above, it’s possible to get a rough idea of where Meta shares could be several years from now.

Assuming earnings rise at the expected rate over that period and the stock’s P/E ratio contracts modestly with growth to 20, Meta shares have considerable upside.

How high could Meta stock go? Meta could rise to $555 per share based on estimates that earnings will grow at a compounded rate of about 19.6% over the next five years.

This may represent a best-case scenario based on a sustained rate of high growth, but it illustrates the potential Meta has to generate market-beating returns over the coming few years.

Will TikTok Dislodge Meta?

Though Meta shows a great deal of promise as ad revenues improve and earnings rebound, the company still faces its fair share of threats.

Chief among these is competition from other social media companies. TikTok, for example, is projected to reach nearly 1 billion users by 2025, making it a very serious competitor to Facebook and Instagram.

Platforms like Twitch and Discord are also rapidly gaining popularity and could potentially put additional competitive pressure on Meta’s legacy platforms in the coming years.

As recent history has shown, Meta’s reliance on ad revenue can also be a risk factor for the company during economically difficult periods.

Although ad revenues are growing again, future downturns could negatively impact Meta’s growth. Advertisers exploring other platforms for cheaper marketing options could also create opportunities for the competitors mentioned above.

Is Meta a Buy?

Meta appears to be an attractive buy from both a value and growth standpoint at the moment. The most recent quarterly report has demonstrated that the company can successfully grow in a more competitive social media market environment as well as the challenges presented by the current economic climate.

It’s also worth noting that Meta has achieved its recent growth feats without resorting to excessive borrowing. The company’s debt-to-equity ratio is just 0.13, a low level that offers Meta some protection from the effects of rising interest rates.

The most recent quarter also showed a crucial refocusing of the company’s efforts on its core social media platforms. After launching headfirst into the Metaverse hype of 2021, the company poured billions of dollars into new R&D efforts that have largely failed to produce returns.

While CEO Mark Zuckerberg remains publicly committed to integrating the physical and digital worlds more fully, both the idea of the Metaverse and the degree to which it will determine Meta’s future have evolved over the last two years.

Overall, Meta could be a good buy for growth investors with a medium tolerance for risk. The company has almost certainly moved past its peak growth years but could continue to provide stable, sustainable returns for several years to come.

Crucially, the high expectations for Meta’s future growth combined with its reasonable valuation might provide investors with a decent margin of safety. Even if Meta’s earnings grow at a slower rate than currently projected, investors could still see respectable returns from the stock.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.