When considering an investment opportunity, compiling a list of reasons to support your decision is akin to creating a roadmap for success. It not only serves as a reference point for future evaluations but also aids in structuring your analysis, providing key indicators to monitor in quarterly reports. While the rationale to invest or hold a stock may shift over time, maintaining an updated list is a prudent strategy.
1. Anchored in a Robust Core Business
Meta Platforms’ core business in social media stands firm, with a dominant presence through platforms like Facebook, Instagram, WhatsApp, Threads, and Messenger. Despite varying user experiences, the number of daily active users across Meta’s properties surged to a record 3.19 billion in Q4. This impressive figure represents nearly half of the global population, underscoring the unparalleled reach of Meta Platforms.
Given the extensive proliferation of Meta’s products, the prospect of the company facing significant adversities seems remote. Its broad diversification and massive user base position it as a behemoth whose hypothetical collapse could reverberate on a global scale. Hence, the longevity of Meta Platforms appears secure, accompanied by a relatively low likelihood of downside risks.
2. Resurgence in Growth Trajectory
Aside from the expanding user base, Meta Platforms is experiencing a resurgence in both sales and profits. Following a dip in the advertising market in late 2022 and early 2023, a remarkable recovery ensued. Given that a substantial portion of Meta’s revenue is derived from advertisements on its various platforms, this revival is pivotal.
In Q4, Meta’s advertising revenue soared to $38.7 billion, marking a robust 24% year-over-year increase. Notably, this surge was not confined to a specific region but rather manifested as widespread revenue growth across all markets.
| Region | Q4 Revenue | YOY Revenue Growth |
|---|---|---|
| U.S. & Canada | $17.78 billion | 19% |
| Europe | $9.16 billion | 33% |
| Asia-Pacific | $7.32 billion | 23% |
| Rest of world | $4.45 billion | 32% |
Data source: Meta Platforms. Table by author, YOY=year over year.
Following a year where profitability was suboptimal due to declining ad sales, Meta Platforms rebounded strongly, achieving its best operating margin since 2021. This upsurge was primarily fueled by escalating revenue and stable expenses, indicating Meta’s prowess as an enterprise. Moreover, with Wall Street analysts forecasting a 17% growth trajectory for 2024, the sustainability of Meta’s growth appears promising.
3. Moderate Valuation of Meta’s Stock
Amidst the prevailing market scenario characterized by exorbitant valuations, Meta Platforms remains reasonably priced. Trading at 24 times forward earnings, the stock’s valuation strikes a balance between affordability and inherent value.
Resilient to the 2022 downturn, when Meta’s excessive expenditures on its Reality Labs division amidst a subdued ad market caused a profit slump, the company has consistently maintained a trailing price-to-earnings (P/E) ratio in the upper 20s.
META PE Ratio (Forward) data by YCharts
If Meta meets Wall Street’s earnings expectations over the next year, the stock would be undervalued relative to historical metrics. This favorable positioning further bolsters the case for investing in Meta Platforms.
4. AI-Powered Upside Potential
Lastly, the focus shifts to Meta Platforms’ Reality Labs division, housing its metaverse, virtual reality, and augmented reality endeavors. Although some applications of these technologies may seem gimmicky, the fusion with generative AI could yield indispensable products.
For instance, Meta’s development of Ego AI, an instructional AI for activities like tennis, cooking, or painting, holds significant transformative potential. When integrated with augmented reality glasses, this technology could revolutionize skill acquisition processes. Although the commercialization of such products may be distant, upon their introduction, they are poised to revolutionize their respective domains.
Given that Meta’s stock valuation predominantly hinges on its advertising realm, any innovations in AI technologies will serve as a value-added proposition. Collectively, these facets affirm the compelling case for Meta Platforms as a prime stock investment.
Should you invest $1,000 in Meta Platforms right now?
Prior to engaging in Meta Platforms’ stock, it is prudent to consider the following:
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, serves on The Motley Fool’s board of directors. Keithen Drury holds positions in Meta Platforms. The Motley Fool holds positions in and recommends Meta Platforms. The Motley Fool abides by a disclosure policy.
The opinions expressed in this article are those of the author and do not necessarily reflect the views of Nasdaq, Inc.
