Meta Platforms: A Closer Look at Its Growth Potential and Future Returns
Investors generally look for stocks that deliver high returns, especially those that outperform the S&P 500, a key performance benchmark.
Meta Platforms (NASDAQ: META) has achieved this successfully, with shares rising an impressive 178% since January 2020. This remarkable growth certainly captures the attention of investors.
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Yet, what really matters to investors is the future. Is it possible for this powerhouse in the “Magnificent Seven” stocks to double in value over the next five years?
Meta’s Competitive Advantage
Meta’s commanding presence in the internet sector is backed by significant advantages, showcasing its exceptional standing among competitors. Investors will readily notice its robust economic moat, highlighted by its extraordinarily strong network effects.
Analyzing its suite of applications — including Facebook, Instagram, WhatsApp, Messenger, and Threads — reveals that these contributed 99% of total revenue in Q3 2024.
Network effects occur when a product becomes more valuable as more people use it. Meta boasts 3.29 billion daily active users across its social networks. As more individuals join these platforms, the appeal grows due to expansive connection possibilities.
This makes it nearly impossible for a competitor to overtake Meta’s leading market position. A new social media app could emerge from well-funded entrepreneurs, but attracting users and engagement is an enormous challenge.
Another positive aspect is Meta’s impressive profitability. In Q3, it recorded a net income of $15.7 billion from total sales of $40.6 billion. This financial strength leads to substantial free cash flow, which supports dividends and stock buybacks, enhancing returns for investors.
Intriguingly, the company’s operating margin increased from 25% in 2022 to 43% in Q3 2024. Despite controlling expenses, revenue soared by 47% from Q3 2022 to Q3 2024, indicating Meta’s significant earnings potential.
Promising Growth Outlook
Even with annual revenue of $156 billion, optimism about Meta’s growth remains high. Wall Street analysts predict a sales growth rate of 13.7% and earnings per share growth of 12.9% annually between 2024 and 2026.
Based on its historical performance, maintaining this double-digit growth trend through the end of the decade seems achievable. The global digital advertising market is expected to grow significantly, allowing Meta to increase ad impressions at higher rates.
According to Chief Financial Officer Susan Li, Meta anticipates “significant capital expenditures growth in 2025,” compared to last year’s range of $37 billion to $40 billion.
These investments aim to enhance the company’s network infrastructure to support its ambitions in artificial intelligence, potentially unlocking even more growth. Meta appears determined to lead in what many believe could be a transformative technology period.
Appealing Investment Opportunity
Meta has shown a strong track record in the stock market. Nevertheless, shares trade at a forward price-to-earnings (P/E) ratio of 24.2, which is relatively reasonable. In contrast, the Nasdaq-100 index has a forward P/E multiple of 25.1, surpassing Meta’s valuation.
It raises questions as to why Meta’s shares maintain such an attractive valuation, especially given its impressive financial achievements in recent quarters. This situation might present a compelling entry point for investors.
Considering the potential for strong profit growth alongside reasonable valuation, it’s plausible that Meta’s stock could double by 2030.
Should You Invest $1,000 in Meta Platforms Now?
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
The views and opinions expressed herein belong solely to the author and do not necessarily reflect those of Nasdaq, Inc.
