Meta Platforms, Inc. (NASDAQ:META), the company behind the popular social media platform Facebook, has seen a remarkable surge in its stock price in 2023. According to Weitz Investment Management’s Partners III Opportunity Fund, Meta’s stock price tripled in 2023, delivering a significant return to investors. This impressive performance has caught the attention of investors and analysts alike, prompting discussions about the factors driving Meta’s growth and whether the stock remains a good investment opportunity.
In this article, we will delve into Meta’s historical performance, examine the factors contributing to its recent success, and explore the challenges the company faces in the market and industry. We will also conduct a financial analysis, provide future projections, and discuss investor sentiment and analyst recommendations to help investors make informed decisions about whether Meta stock is still a good buy after its 147% rise.
Historical Performance Review
Meta Platforms, Inc. (NASDAQ:META) has demonstrated impressive growth since its initial public offering (IPO) in 2012. The company’s stock price has risen from $38 per share at the IPO to over $500 per share as of March 2024, representing a staggering 1,200% increase. This remarkable performance has led to a market capitalization of $1.195 trillion as of February 12, 2024.
Stock Price Performance
| Timeframe | Stock Price Change |
|---|---|
| 5-year | 207% |
| Since IPO (2012) | Over 1,200% |
| Past year | Over 130% |
| Year-to-date (YTD) | Over 39% |
Meta’s stock price has experienced significant fluctuations in the past year, with the share price currently below its 5, 20, and 50-day exponential moving averages, indicating a strongly bearish trend. However, the price exceeds its 200-day simple moving average, suggesting a bullish signal.
Financial Performance
- Q4 2023 revenue: $40.11 billion, a 25% year-over-year (YoY) increase
- Full-year 2023 revenue: $134.90 billion, a 19% YoY increase
- Q4 2023 net income: $12.39 billion, a 12% YoY increase
- Full-year 2023 net income: $40.27 billion, a 2% YoY increase
- Q2 2023 revenue: $31.999 billion, an 11% YoY increase
- Q2 2023 diluted earnings per share (EPS): $2.98, a 21% YoY increase
Meta’s sales growth has been accelerating for the past three quarters, with a 24% YoY increase in Q4 2023, driven by strong growth in its digital advertising business. The company’s business model ensures high margins, with an operating margin of 35% in 2023, contributing to $43 billion of free cash flow generation.
Factors Contributing to Meta’s Growth
Meta’s impressive growth in 2023 can be attributed to several key factors. The company’s strong financial performance, with Q4 2023 revenue increasing by 24.7% year-over-year to $40.1 billion and net income surging by 201.3% to $14 billion, demonstrates its ability to capitalize on market opportunities. For the full year 2023, Meta’s revenue reached $134.90 billion, a 16% increase from the previous year. This growth was driven by a combination of increased user engagement, with daily active people (DAP) across Meta’s Family of Apps rising by 8% year-over-year to 3.19 billion, and a 21% year-over-year increase in ad impressions delivered.
Meta’s focus on efficiency and cost reduction, dubbed the “year of efficiency,” played a significant role in its success. The company managed to keep expenses at $88 billion, below its initial estimate of $94 to $100 billion. Additionally, Meta benefited from the expected rebound in the digital ad industry in 2024 and the deployment of AI to enhance advertising efficiency. Despite its substantial growth, Meta’s valuation remains reasonable, with a price/earnings-to-growth (PEG) ratio below 1, suggesting that the stock is undervalued.
Key Growth Drivers
- Advertising Revenue
- Chinese advertisers, particularly e-commerce sites Shein and Temu (from PDD Holdings), significantly contributed to Meta’s growth, accounting for 10% of overall revenue and adding 5 percentage points to total worldwide revenue growth.
- Meta captures 21.9% of all U.S. digital advertising sales, second only to Google.
- The company’s AI-powered advertising platform helps dominate social media advertising.
- User Engagement and Reach
- Meta’s social media platforms, including Facebook, WhatsApp, Instagram, and Messenger, have a combined 4 billion-plus monthly active users.
- This massive user base gives Meta a significant advantage in terms of user reach and network effects.
- Investments in AI and the Metaverse
- Meta is heavily investing in AI and the metaverse, with its digital advertising business remaining the primary focus.
- The company launched updates for its Meta.ai chatbot, powered by the Llama large language model, aiming to build the world’s leading AI.
- Meta announced its next-generation custom computing chip for AI, the Meta Training and Inference Accelerator (MTIA).
- Efficiency and Optimization
- Meta is investing in tools to increase efficiency, such as AI tools to help engineers write better code faster and enable the automation of workloads.
- The company is focusing on returning to a more optimal ratio of engineers to other roles.
- Meta is committed to in-person time to build relationships and get more done.
| Growth Factor | Key Highlights |
|---|---|
| Advertising Revenue | – Chinese advertisers contributed significantly – Meta captures 21.9% of U.S. digital ad sales – AI-powered advertising platform dominates social media advertising |
| User Engagement and Reach | – 4 billion-plus monthly active users across platforms – Significant advantage in user reach and network effects |
| AI and Metaverse Investments | – Heavy investments in AI and the metaverse – Meta.ai chatbot powered by Llama large language model – Next-generation custom computing chip for AI (MTIA) |
| Efficiency and Optimization | – AI tools to increase efficiency and automate workloads – Optimizing the ratio of engineers to other roles – Focus on in-person time for relationship building and productivity |
These factors, along with Meta’s ongoing investments in VR and AR technologies, position the company well to capitalize on emerging trends and maintain its competitive edge in the social media industry.
Shein and Temu have grown substantially in the U.S.. These brands invest in advertising in Meta?
Yes, Shein and Temu have invested heavily in advertising on Meta platforms (Facebook and Instagram) as part of their strategy to grow in the U.S. market. This has been a significant factor in their rapid expansion.
Some reports suggest that Temu alone spent nearly $2 billion on Meta ads in 2023, and both companies have been observed running thousands of ads simultaneously on these platforms.
This aggressive advertising strategy has not only contributed to the success of Shein and Temu but has also impacted Meta’s advertising revenue, particularly from China, which nearly doubled in 2023 compared to the previous year.
Additionally, their advertising practices have drawn attention and scrutiny, with some concerns raised about the sheer volume of ads and their potential impact on the user experience.
Overall, Shein and Temu’s investment in Meta advertising has been a crucial element of their growth strategy in the U.S., demonstrating the power of digital advertising in reaching and engaging consumers. However, it has also raised questions about the broader implications of such advertising practices for both consumers and the platforms themselves.
Market and Industry Challenges
Meta faces several market and industry challenges that could impact its future growth and profitability. A potential TikTok ban in the U.S. could benefit Meta, as TikTok is one of its biggest competitors. However, the situation is still uncertain, and the outcome could impact Meta’s advertising strategy. Additionally, Meta faces competition with Apple in the digital advertising space and is now facing off with Apple in the VR headset market.
To address these challenges and improve efficiency, Meta is planning to restructure its organization in a difficult economic environment. The restructuring plan includes:
- Canceling lower priority projects
- Reducing hiring rates
- Reducing the size of the recruiting team
- Reducing the team size by around 10,000 people
- Closing around 5,000 additional open roles
The tech industry experienced a significant surge in layoffs in 2023, with over 1,600 tech employees being globally fired each day. The number of layoffs in the tech sector increased to 226,000 workers in 2023, marking a nearly 40% increase from 2022. Meta, along with other tech companies, made cuts to Diversity, Equity, and Inclusion (DEI) programs in 2023. These cuts may impact the ability to attract and retain talent, affecting future relationships with DEI stakeholders.
| Challenge | Description |
|---|---|
| Supply Chain Disruptions | The Covid-19 pandemic continues to impact global supply chains, causing bottlenecks, delays, and disruptions. A significant challenge is the unprecedented shortage of semiconductors (chips), leading to production delays across various industries. |
| Cyber Security Threats | Cyber-attacks are on the rise, and businesses accumulate more data as they become digital, attracting cybercriminals. The emergence of quantum computing could render existing security systems obsolete by making attacks against cryptography more efficient. |
| Emerging Technologies | Technological innovation is advancing at an incredible speed, and companies must stay at the forefront to maintain their competitive edge. Emerging technologies include cloud, edge computing, machine learning, metaverse, web3, non-fungible tokens (NFTs), robotics, IoT, and 5G. |
| Qualified Talent Shortage | The qualified talent shortage is a significant barrier to the adoption of emerging technologies. Companies are adopting new and innovative internal training programs to hire and train prospects and internal workers. |
| Sustainability Expectations | Consumer expectation for sustainable technology is rising, and companies must prioritize sustainability in all aspects of business. Companies need to use clean and sustainable technology, particularly in areas with high resource usage, such as data centers and blockchains. |
Meta’s Reality Labs division had an operating loss of $16 billion in 2023, with an expected loss of $19 billion in 2024. Meta’s most intense rivalry is with Apple, as changes to Apple’s privacy policies have impacted Meta’s sales, and Apple’s entry into the VR space could further intensify the competition. Other challenges include increased regulatory scrutiny, privacy-focused changes by Apple, and emerging competition from TikTok and other platforms. Meta’s competitors include Google, Twitter, Amazon, Snapchat-parent Snap, Apple, YouTube, Bytedance, and Tencent.
Financial Analysis and Future Projections
Meta’s financial performance and future projections indicate a promising outlook for the company. In Q4 2023, Meta’s earnings per share (EPS) are expected to reach $4.93, a significant increase from $1.76 in Q4 2022. The company’s revenue for the same quarter is projected to be $39.08 billion, up from $32.16 billion in the previous year. For the full year 2023, earnings are expected to rise by 67.6% year-over-year to $14.38 per share, while revenue is projected to reach $133.68 billion, a 14.6% increase compared to 2022.
Looking ahead, analysts have set high expectations for Meta’s growth:
| Timeframe | Revenue Projection | EPS Projection |
|---|---|---|
| Q1 2024 | $36.16 billion (26.3% YoY increase) | $4.32 (14.4% YoY increase) |
| Q2 2024 | $38.29 billion (16.5% YoY increase) | $4.76 (14.4% YoY increase) |
| Full Year 2024 | $158.58 billion (14.4% YoY increase) | $20 (14.4% YoY increase) |
Analysts predict that Meta’s revenue will grow at a compound annual rate of 11.2% over the next three years, while earnings per share (EPS) are expected to grow at a rate of 14.7% per annum. The company’s return on equity (ROE) is projected to reach 22.7% in the next three years.
Valuation and Price Targets
- Meta’s current P/E ratio is around 20.88, slightly above the industry average, and its price-to-sales ratio is 7.19, higher than the industry average, suggesting that the stock may be overvalued.
- The average one-year price target for Meta Platforms, Inc. is $540.01, with forecasts ranging from a low of $262.6 to a high of $640.5.
- Analysts remain bullish on META, with Citigroup analyst Ronald Josey reiterating a Buy rating and raising the target price to $440 from $425.
- TD Cowen’s John Blackledge raised the price target on Meta shares to $590 from $500.
Despite the challenges faced by the tech industry, Meta’s strong financial performance, cost optimization initiatives, and investments in emerging technologies like AI and the metaverse position the company for continued growth and success in the future.
Investor Sentiment and Analyst Recommendations
Meta’s stock has demonstrated strong technical ratings, with a Relative Strength Rating of 96 and a Composite Rating of 99, indicating its outperformance compared to other stocks. Despite its recent surge, Meta’s forward price-to-earnings ratio of 25.6 is lower than the Nasdaq-100 index’s average of 30.4, making it a potentially attractive investment for value-oriented investors.
Investor sentiment towards Meta stock remains mixed, with some expressing concerns over slowing growth and regulatory scrutiny, while others remain optimistic about the company’s long-term potential. The Relative Strength Index (RSI) for Meta stock is currently at 45.07, flirting with the oversold zone. However, the consensus rating for Meta stock is “Buy,” with a consensus price target of $459.70.
Analyst Recommendations
Analysts have been closely monitoring Meta stock, with 34 research reports published in the past 90 days. The majority of analysts maintain a bullish outlook on the company:
- Citigroup analyst Ronald Josey reiterated a Buy rating and raised the target price to $440 from $425.
- Mizuho analysts maintain a Buy rating, believing that the monetization potential of WhatsApp, combined with artificial intelligence, could increase Meta’s revenue base by a third over time.
- TD Cowen’s John Blackledge raised the price target on Meta shares to $590 from $500.
| Analyst Firm | Rating | Price Target |
|---|---|---|
| Citigroup | Buy | $440 |
| Mizuho | Buy | N/A |
| TD Cowen | N/A | $590 |
The last three analysts’ price targets for Meta stock are $590, $550, and $550, with implied upsides ranging from 10.5% to 18.5%. Additionally, short interest in the stock has recently decreased by 10.26%, indicating improving investor sentiment.
Conclusion and Investment Consideration
Meta Platforms, Inc. has demonstrated remarkable growth and financial performance, driven by strong advertising revenue, user engagement, and strategic investments in AI and the metaverse. Despite facing challenges such as increased competition, regulatory scrutiny, and the need for organizational restructuring, Meta’s future projections and analyst recommendations suggest a promising outlook for the company. The stock’s attractive valuation and the potential for continued growth in emerging technologies make it an appealing investment opportunity.
While investor sentiment remains mixed, the majority of analysts maintain a bullish outlook on Meta stock, with price targets indicating significant upside potential. As Meta continues to optimize its operations, invest in innovation, and capitalize on its massive user base, the company is well-positioned to navigate the challenges of the market and industry, making it a compelling choice for investors seeking long-term growth opportunities in the tech sector.
