Will Meta Stock Make You Rich?

Facebook parent Meta Platforms, Inc. (NASDAQ:META) has recently seen heightened investor interest.

This tech giant, with a market cap of more than $1 trillion, has gained more than 40% over the past three months.

Over the past year, the stock has returned more than 150%, leveraging the tech industry’s impressive turnaround from the 2022 blues.

The company’s multifaceted approach is paying off. Its world-class products, Facebook, WhatsApp, and Instagram, have been the dominant social media behemoths for quite some time. Moreover, last year, the company added the Threads platform to its portfolio, entering the social media branch that lets one share text updates.

With momentum on Meta’s side, how high can the stock can fly?

The Year Meta Tumbled

Meta had a rough time in 2022 when its stock fell by more than 60%, approximately doubling the losses of the tech-heavy Nasdaq Composite. Alongside an unfavorable macroeconomic backdrop, this could be largely attributed to investors’ pessimism about the company’s “revamp” and the growing threat of TikTok.

In late 2021, Meta’s CEO, Mark Zuckerberg, introduced Meta, revamping the company to have an intense focus on the metaverse. Zuckerberg’s attention toward the metaverse, a still-nascent technology, was not seen favorably by the market or advertisers.

Add the stellar user growth of TikTok into the mix and it created a stiff competitive environment for the Facebook parent.

Meta Bounces Back

In 2022, Meta recorded a year-over-year drop in its annual top line figure for the first time since 2013. The company’s revenue decreased by 1% from the prior year to $116.61 billion, reflecting a similar yearly drop in advertising revenue.

However, the company’s efficient operations and high customer engagement helped it recover from the slowdown. Daily Active People (DAP) increased 8% year-over-year to 3.19 billion on average for December 2023, while Monthly Active People (MAP) rose 6% from the prior-year period to 3.98 billion as of December 31, 2023.

Furthermore, Instagram Reels, which competes with TikTok in the short-video format, is seeing heightened engagement. For instance, in Q4 2023, Meta’s daily watch time across all video types (including Reels) grew by over 25% year over year. Moreover, the company reported that people reshare Reels 3.5 billion times every day.

As a result, the company’s revenue jumped 16% year over year to $134.90 billion last year. Its advertising revenue also increased 16% from the prior year to $131.95 billion.

This is notable since the average price per ad decreased by 9% from its year-ago value, while ad impressions (defined as the number of times adverts were on screen) increased by 28% year over year.

Heightened efficiency was seen at the tail end of the year, as in Q4 2023, the company reduced its costs across all verticals except research and development.

As a result, its Q4 2023 net income and EPS were approximately three times what they were a year ago, at $14.02 billion and $5.33, respectively.

Like many other big tech firms, Meta has significantly downsized its workforce in recent years. However, Meta’s hiring efforts resumed in Q4, going up 2% sequentially.

Meta Shareholders Now Get Paid Quarterly

Following strong quarterly and annual performance, the company initiated dividend payments, declaring a cash dividend of $0.50 per share, payable to shareholders on March 26, 2024. Meta wishes to continue paying quarterly dividends. Its forward annual dividend of $2 yields 0.4% at the prevailing price level.

The company remains focused on scaling its engagement this year. Its Threads platform is expected to add additional features and grow its community. The company, as a testament to its whole business reconfiguration, has largely betted on AI as a long-term ambition.

Zuckerberg attributed Meta’s lean operational model to helping it execute its business tasks faster and be more focused on delivering better financial results. Looking forward, the company expects scalability in its AI operations.

Meta is set to launch Llama 3, a version of its foundation language models. In addition to focusing on increasing organic engagements across its platforms, Meta has also turned toward AI to drive greater efficacy in its advertisement systems, which is anticipated to reap benefits.

However, such aggressive scaling should incur high costs, which is why the company expects its full-year capex to be between $30 and $37 billion, reflecting a $2 billion increase from the high end of its prior range. Higher infrastructure-related costs and payroll expenses are also expected this year.

Can Meta Make You Rich?

According to analysts, Meta is likely to make shareholders only moderately richer with fair value sitting at $518, an 4.3% increase from present levels.

Meta’s impressive turnaround from the lows of 2022 has raised investor optimism that the company’s vision about AI and the metaverse could finally start to reap some gains. For the first time, its reality labs segment, which deals with metaverse-related operations, reported revenues of over $1 billion in the last quarter.

Although its near-term analyst-predicted price target of $518.26 indicates modest upside, of the 46 Wall Street analysts rating Meta, 39 gave it a ‘Buy’ rating.

Considering analysts expect a 34.4% year-over-year growth in its EPS to $19.98 in 2024, META’s forward price-to-earnings (P/E) ratio of 24.87 looks justified even if higher than its industry peers.

Moreover, META’s non-GAAP forward PEG of 1.21 is quite low by industry standards, indicating much higher earnings growth over the next 3-5 years compared to its peers.

The bottom line is Meta’s immense growth prospects do not appear to be fully reflected in its valuation. Hence, the stock might be a solid buy at this juncture to capitalize on the growth prospects of social media and AI simultaneously.

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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.