Meta Stocks, formerly known as Facebook stocks, is one of the technology giants dominating the global social media and digital advertising landscape. This analysis delves into Meta’s recent financial performance, key growth drivers, and the outlook for its stock price in the coming years.
Recent Performance
Meta’s third-quarter earnings report, released on October 25, 2023, showcased robust financial performance. The company reported a 23% year-over-year increase in revenue, reaching $34.1 billion, surpassing analysts’ expectations by $700 million. Net income surged by 164% to $11.6 billion, or $4.39 per share, surpassing consensus forecasts by $0.76. These impressive results underscore Meta’s resilience and growth potential.
Accelerating Growth in Ad Revenue
A significant portion of Meta’s revenue, approximately 98%, is derived from advertising. After a period of three consecutive quarters of declining ad revenue, the first quarter of 2023 marked a turning point, with revenue growth accelerating throughout the second and third quarters. Several factors contributed to this resurgence:
- Increased ad spending from Chinese e-commerce and gaming companies targeting overseas customers on Meta’s platforms.
- Higher total ad impressions, offsetting lower average ad prices impacted by Apple‘s privacy changes and a mix of lower-revenue overseas users.
- Ongoing improvements in ad targeting and measurement tools are expected to stabilize average ad prices.
Despite these positive developments, CFO Susan Li acknowledged the influence of unpredictable macroeconomic factors on the advertising business.
Soaring Operating Margins
Meta’s commitment to investing in its Reality Labs segment, responsible for VR and AR devices, had previously weighed on its operating margins. However, over the past year, the company’s advertising business growth and cost-cutting measures have helped offset these losses. Notably, Meta’s operating margin doubled year-over-year, reaching 40% in the third quarter, its highest in two years. This indicates the company’s ability to sustain its unprofitable ventures like the “metaverse” while leveraging its profitable advertising business, similar to Alphabet’s approach with Google and Waymo.
Also read: Is It The Right Time To Invest In Google Stock?
Expanding Family of Apps
In the third quarter, 3.14 billion daily active users were served by Meta’s Family of Apps, which includes Facebook, Messenger, Instagram, and WhatsApp. This represents a 7% growth from the previous year. Facebook’s daily active users alone grew by 5% to 2.09 billion, highlighting the enduring popularity of Meta’s core platforms. Additionally, Meta’s introduction of Reels has increased user engagement on Instagram, further strengthening its competitive position against platforms like TikTok.
Positive Outlook
Meta’s guidance for the fourth quarter of 2023 predicts revenue growth of 13%-24% year-over-year, exceeding Wall Street’s expectation of 21%. The company has also reduced its full-year expense forecast, demonstrating prudent cost management. Although the Reality Labs unit is projected to incur operating losses in 2023, analysts anticipate a 7% increase in revenue and a remarkable 47% rise in earnings per share for the full year. Looking ahead to 2024, expectations include 13% revenue growth and 24% earnings per share growth.
Is It Too Late to Buy Meta Stock?
Meta stock exhibited substantial growth in 2023, recovering from a challenging 2022. Despite these gains, it’s important to consider whether investing in Meta stocks remains a prudent choice given the stock’s current valuation and industry dynamics.
Why Meta Stock Declined in 2022
The adverse impact of macroeconomic headwinds on marketing spending had a pronounced effect on Meta Platforms in 2022. As a company heavily reliant on digital advertising revenue, it faced challenges, resulting in three consecutive quarters of year-over-year revenue declines, a first in its history. This situation led to concerns among investors and a sharp decline in the stock’s value.
Recovery and Growth in 2023
Meta Platforms saw a notable resurgence in 2023, with second-quarter revenue up 11% year over year and earnings per share rising 21%. The company’s strategic efforts, in conjunction with the recovery in digital advertising, position Meta for future development and profitability.
Potential Catalysts for Future Growth
The use of generative AI by Meta offers exciting prospects. In order to provide advertisers with useful tools, the company is actively utilizing AI in its advertising business to improve targeting and customize content. Meta has a competitive advantage in the changing world of digital advertising thanks to its proactive embrace of AI.
Meta’s Valuation and Future Opportunity
Meta’s current stock valuation is trading at 37 times trailing 12-month earnings and around 7 times sales. While this valuation may seem elevated, considering the company’s future prospects, it becomes more reasonable. Looking at forward earnings, the stock is trading at 24 times next year’s earnings and 5 times next year’s sales, indicating a more favorable valuation. Analysts anticipate double-digit sales and earnings-per-share growth for Meta between now and the end of 2024.
Meta’s provision of AI expertise to advertisers for free could attract a growing number of businesses to its platform, further supporting its growth potential.
Meta Stock Price Predictions
For those considering Meta stock as a long-term investment, let’s explore price predictions for the years ahead:
- 2024: Meta Platforms is expected to reach a maximum price of $384.046 by the end of the year.
- 2025: The stock price is forecasted to open at $400.56 in January, with a maximum price of $482.879 by June and an expected year-end opening of $436.810 and closing at $449.656. The maximum price for 2025 is projected to be $470.780.
- 2026: Meta stock price is predicted to open at $494.118 and close at $496.101 in the last month of 2026, with an expected maximum price of $497.478.
- 2027: Long-term projections for 2027 vary, with predictions ranging from $489.243 to a more optimistic $2,019. The exact outcome will depend on various factors, including the company’s performance and external market conditions.
- 2028: While Wallet Investor hasn’t made predictions for 2028, CoinPriceForecast suggests a mid-year price of $683 per share and an end-of-year price of $697.
- 2029: In 2029, Meta stock is expected to continue growing, potentially reaching the $500 mark. By mid-year, it is expected to be priced at $612, with a year-end prediction of $627.
- 2030: Looking ahead to 2030, Meta stock prediction is for it to reach $743 by mid-year and $665 by year-end, reflecting the company’s anticipated growth in the metaverse and related technologies.
It’s essential to consider that these predictions are based on current data and assumptions and are subject to change as market conditions and company performance evolve. Meta Platforms have the potential to outperform these forecasts, particularly if it addresses privacy concerns and navigate their future challenges effectively
Conclusion
Investing in Meta stocks presents an opportunity with considerable growth potential. The recovery in digital advertising, the company’s strategic initiatives, and the adoption of AI technologies position Meta for sustained success. While the stock may seem fully valued at present, a forward-looking perspective reveals a more attractive opportunity. The long-term outlook for Meta Platforms remains positive, making it a compelling investment choice.