Meta Platforms (NASDAQ:META) stock has experienced remarkable bullish momentum, rising by an impressive 177% in the past year. Despite undergoing such a tremendous rally, I expect sustained positive sentiment, especially with 2024 being an election year. With an anticipated uptick in ad spending this year, Meta, a giant in the advertising space, stands to reap significant benefits. Coupled with my view that shares appear reasonably valued, my outlook on META remains bullish.
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Assessing Meta Platform’s Current Momentum
With Meta surging by more than 174% over the past year, the stock is undeniably enjoying unstoppable momentum. In my view, several factors are powering this momentum, but the benefits from the 2024 elections have not been priced in yet, leaving plenty of room for upside.
In particular, I would attribute the ongoing stock price rally to a mix of FOMO and improving margins following last year’s cost-cutting initiatives. However, the stock seems cheap relative to Meta’s future earnings growth estimates. But let’s look at one thing at a time.
Looking back to October 2022, only a year and a half ago, the sentiment surrounding Meta stock was quite different. At the time, shares dipped below $90 as the company grappled with perceived instability. Mark Zuckerberg was then attempting to justify Meta’s Reality Labs segment, incurring over $10 billion in annual losses, as a reasonable investment. The company’s attention had shifted entirely to the elusive “Metaverse.” And yet, the Metaverse demos at the time looked worse than Wii Sports released in 2006.
Investors, myself included, disapproved of this direction. We had a robust platform of lucrative apps, and instead of focusing on monetization, cost efficiency, and returning capital to shareholders, Zuckerberg redirected the ship toward the unknown. Fortunately, Meta’s management swiftly responded to investors’ concerns, gradually becoming quieter on the Metaverse and starting to focus on implementing cost-cutting measures, including a 13% reduction in the workforce in late 2022.
This caused a rapid shift from an ultra-bearish sentiment to an ultra-bullish one, leading to Meta’s swift rally. Such a sudden shift in sentiment likely left many investors behind. Thus, I believe the ongoing momentum continues to be propelled by FOMO.
But while some may argue that this FOMO may have led to the stock being overvalued, I think otherwise. In fact, shares remain attractively priced considering Meta’s future growth estimates – especially in the face of upcoming election-related spending. Let’s take a deeper look.
Is Meta’s Current Valuation Aligned with Election-Boosted Growth Projections?
The impending U.S. elections should serve as a substantial tailwind for the advertising industry, with industry giants like Meta poised to capitalize significantly. To provide context, in the 2019-2020 election cycle, total political advertising spending reached a staggering $8.5 billion across all mediums, with political digital advertising witnessing a remarkable 4.6x increase from 2018 to 2020.
Research stemming from the previous election cycle underscores Facebook’s 12-fold cost-effectiveness compared to TV in less efficient geographical zones. Also, a February 2021 Wesleyan study revealed that over 10 times as many state legislative candidates opted to advertise on Facebook than on television, primarily attributing this choice to the cost-advantaged tradeoff.
With politicians increasingly convinced of the effectiveness of digital ad spend, the current election cycle is poised to lead to a substantial surge in political ad spending.
Reuters reports a projected 30% increase in political ad spending in the U.S. this year compared to the last presidential election in 2020, primarily driven by higher expenditures on digital platforms. While TV remains the dominant recipient of ad spending, digital platforms are expected to see the most significant growth in political ads, with revenues forecasted to surge by 156% from 2020 to $3.46 billion in 2024.
Wall Street analysts seem to be catching up to this reality. Last year, the market anticipated Meta to achieve revenues of approximately $137 billion in Fiscal 2024. This figure has since risen to nearly $151 billion, and given the ongoing trajectory of earnings estimate revisions, there is a strong likelihood that this figure will continue to ascend.
In the interim, consensus estimates suggest that Meta will post EPS of $17.43 next year. Notably, Wall Street estimates have historically been conservative, with Meta often exceeding expectations by a wide margin. Even if we adopt Wall Street’s estimate, though, Meta’s current valuation stands at a modest 21 times next year’s EPS.
I believe that this forward P/E is cheap, given the company’s substantial market dominance, consistent double-digit growth, and management’s strategic focus on bolstering profits. Consequently, in spite of Meta’s considerable rally in recent quarters, the combination of relatively subdued forward estimates and a soft valuation should continue to support the ongoing positive momentum.
Is META Stock a Buy, According to Analysts?
Regarding Wall Street’s sentiment on the stock, Meta Platforms retains a Strong Buy consensus rating based on 36 Buys and two Holds assigned in the past three months. At $397.31, the average META stock price target suggests 8.1% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell META stock, the most profitable analyst covering the stock (on a one-year timeframe) is Brad Erickson from RBC Capital, with an average return of 58.54% per rating and a 76% success rate. Click on the image below to learn more.
The Takeaway
Meta Platforms’ crazy surge in the past year reflects its invincible momentum driven by factors like FOMO and improving margins. However, as the 2024 election year approaches, the anticipated uptick in political ad spending positions Meta for further gains.
Reflecting on Meta’s transformative journey from a Metaverse-centric focus to a profit-driven strategy, the current valuation also appears attractive. With a notable increase in political ad spending that only gradually appears priced in by Wall Street estimates, Meta’s ongoing positive momentum seems poised for sustained growth.
