Meta Platforms (NASDAQ:META) has proven to be a remarkable business. It is a growth giant with a compounded revenue growth of nearly 35% since 2010. The business model remains strong despite skepticism, and even the much-criticized Facebook continues to grow. Digital advertising remains vital to the global economy, and the company has effectively controlled its expenses while reviving profitability. The results over the last year demonstrate the resilience of the business. Although there are concerns about Mark Zuckerberg’s approach to capital allocation, our analysis suggests that the share price is 89% over its intrinsic value, indicating significant overvaluation driven by the market’s unpredictable behavior.

The Business Model is Still Phenomenal

Few businesses have achieved the level of sustained rapid growth demonstrated by Meta. Since its public offering, Meta’s revenue has compounded at 34.64%, far exceeding the world’s collective gross domestic product (GDP) growth of 3.92%.

At the core of this growth is Meta’s ability to connect people and businesses, making it an indispensable platform for a wide range of interactions. As the user base expands, so does the network’s value. The dominance of Meta in digital advertising, especially after the impact of Apple’s App Tracking Transparency (ATT) policy, further solidifies its position in the industry.

Facebook Keeps Growing

Analysts’ perception of Facebook as a declining platform primarily serving older demographics overlooks the fact that the platform continues to expand, particularly in the Asia-Pacific and the Rest of the World regions. Despite flat growth in Europe and tepid growth in North America, Facebook’s overall user base is steadily increasing.

Advertising Still Matters

Despite the challenges posed by Apple’s ATT, Meta and Google remain the two dominant players in the global digital advertising market. While advertisers face uncertainties, Meta’s enormous scale across its platforms ensures its relevance in the advertising space.

Profitability is on the Way Up

Meta’s business model yields tremendous profitability, allowing for aggressive strategic pursuits without significant negative impact. Despite growing expenses, the company has maintained profitability and even augmented its cash reserves and free cash flow.

Meta Has Reined in Its Costs and Expenses

While Meta’s costs initially seemed unsustainable, the company has managed to stabilize its expenses, supporting a rebound in profits. Cost control measures led to the firm’s second-highest core earnings in its history.

Capital Allocation Isn’t at the Heart of the Business

Zuckerberg’s focus on Meta’s social mission, as evident in his communication, reflects a different approach to commercial decision-making. This philosophical standpoint, while important for the company’s culture, may diverge from traditional investor expectations.

The AI Opportunity

Meta’s expansion of its AI capacity serves to enhance its competitive advantage in digital advertising and content recommendation, further consolidating its position in the market.

Valuation

An analysis of Meta’s valuation suggests an 89% overvaluation of the share price, making it indefensible from an investment perspective. The disparity between the share price and the business’s fundamental value raises concerns for potential investors.

Conclusion

While Meta has demonstrated resilience and strength, the significant overpricing of its shares presents a barrier for potential investors. The current valuation does not align with the business’s intrinsic value, indicating a potential investment risk.