With theNasdaq Compositehitting record highs, driven by a select group of tech giants, savvy investors are on the lookout for diamonds in the rough. Amidst this pursuit, a shining star emerges.
None other than the sensation that isMeta Platforms(NASDAQ: META). With shares catapulting by a staggering 277% in under two years, one might wonder if it’s too late to partake in the feast. Fear not, for this story is far from over, and here’s why.
The Unrivaled Dominion
Sporting a colossal user base of 3.98 billion monthly actives spread across its app conglomerate (encompassing Facebook, Messenger, WhatsApp, and Instagram), Meta stands as a behemoth unmatched in its scale. To put things in perspective, nearly half of the Earth’s populace engages with a Meta service at least once every thirty days.
Riding on the back of these free-to-use apps, Meta rakes in a whopping 98% of its revenue from the digital advertising realm. Though subjected to the cyclical nature of ad revenues, as witnessed in the slump of 2022, the upside is a mouth-watering profitability. Notably, Meta’s app suite boasted a jaw-dropping 54% operating margin in the last quarter.
Remarkably, these social platforms necessitate zero content creation from Meta; the company merely provides the stage while users perform the show. This lays the groundwork for potent network effects: People flock to the social hubs where their kin and comrades reside.
As the user base swells and content proliferates, Meta’s service quality escalates over time. This fortifies my belief that the company’s competitive fortress will shield it from disruption perils, paving the way to sustained triumph.
An Eye on Innovation
The buzz around artificial intelligence (AI) is deafening, with corporations jostling for pole position in this potentially transformative arena. Yet, the strategy isn’t convoluted. Players entrenched in tech and cyberspace, like Meta, stand to reap the rewards.
Meta has woven AI features into its app universe to elevate user experience. Furthermore, for advertisers, Meta rolled out generative AI tools, streamlining operations for enhanced outcomes. This positions the company to command steeper ad prices down the road, particularly when considering its unparalleled precision in catering to target audiences.
Throw in its metaverse ambitions housed under the Reality Labs wing, Meta is sculpting various ventures in augmented and virtual reality, envisioning a new paradigm in computing. While this segment has been incurring hefty losses quarter after quarter, a successful outcome could birth a goldmine in the not-too-distant future.
A Sensible Valuation
Investors lament not seizing Meta shares during their stint at a paltry forward price-to-earnings (P/E) multiple of 10 back in late 2022. The era faced decelerating ad growth, squeezed margins, and soaring losses in the Reality Labs division.
Yet, Meta’s stock continues to sparkle at an enticing valuation, even after its meteoric ascent in the past 18 months. The prevailing forward P/E of 26 presents an attractive entry point, considering the breadth and depth of the company’s social media platforms, robust network effects, and AI emphasis.
As equities scale dizzying heights, verdant pastures still exist. Meta nestles snugly in this realm of allure.
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Randi Zuckerberg, the erstwhile director of market development and spokesperson for Facebook, and sister to Meta Platforms CEO – Mark Zuckerberg, sits on the board of The Motley Fool. Neil Patel and his clientele do not hold any positions in the mentioned stocks. The Motley Fool holds and recommends shares of Meta Platforms. The Motley Fool abides by a disclosure policy.
The opinions presented are those of the writer and not necessarily a reflection of Nasdaq, Inc.
