In this article, I’ll outline the investment thesis for Meta Platforms (META) stock and explain why it could be the top unrivaled investment for the next decade. Meta Platforms is the powerhouse behind Facebook, Instagram, WhatsApp, and Messenger. It also operates Reality Labs, its venture into virtual reality (VR).
META stock has surged over 65% this year, with significant upside potential remaining. Despite already surpassing 3 billion users, the company shows no signs of slowing growth, continuing to attract millions more. I’m bullish on Meta due to its strong fundamentals and untapped growth potential, particularly as AI (artificial intelligence) starts transforming the digital advertising landscape.
Meta Platforms’ Fundamentals Remain Strong
Central to my bull case for Meta Platforms is the fact that its fundamentals remain strong. Meta has bounced back with strong performance in recent quarters after a temporary slowdown in 2022. In the second quarter of 2024, the company’s revenue grew by 22% year over year, reaching $39.07 billion. The business is thriving despite challenges in its Reality Labs division, which posted a loss of $4.5 billion in Q2 2024.
Even after two decades of growth, the company continues to attract new users. Its family daily active people (DAP)—the number of people using its apps daily—rose 7% year-over-year to 3.27 billion in Q2 2024.
Meta’s asset-light business model is highly profitable. The company generates revenue by selling advertising space on its platforms, earning money as businesses use its apps to promote their products or services. In the latest quarter, ad impressions across Meta’s apps grew 10% year-over-year, with the average price per ad also rising by 10%.
Consequently, the rising number of users on its apps, coupled with the increase in ad impressions and average ad prices, has led to higher sales and profitability. Meta Platforms’ lucrative business model has helped it amass high profit margins. Over the trailing twelve months, the company reported a gross margin of 81.40% and an operating margin of 39.25%. As Meta Platforms continues to gain market share and reduce costs, there may be potential for further margin expansion.
Meta May Still Have Significant Untapped Potential
Growth remains strong for Meta Platforms, and I’m optimistic about the company’s untapped potential. Meta is poised to leverage the new and exciting opportunities in the AI-enabled digital advertising space. As the company increases its capital expenditures for product innovation, I believe investors can anticipate further growth.
For 2024, the management has raised its CapEx guidance to a range of $37 and $40 billion, up from the previous range of $35 and $40 billion. It also indicated that this will further increase in 2025 as it continues to invest in AI and product development. While the increase in CapEx concerns some bears, it doesn’t worry me that much. On the flip side, Meta Platforms’ VR business has been a cash burner. However, this shouldn’t overshadow the recent successes with Reels on Instagram, Meta AI on WhatsApp, and the new AI Studio aimed at enhancing user engagement across its apps.
Meta Platforms is maximizing ROI for advertisers by providing businesses with a vast playground across all its apps, equipped with the latest AI tools to help them expand their product reach. Its leadership in the digital advertising market and technological expertise should enable it to provide more engaging products for both businesses and consumers. Therefore, Meta Platforms likely has significant untapped growth potential.
Barton Crockett, Rosenblatt’s senior research analyst, is also of the view that the company is one of the fastest growers in the advertising market and sees material earnings growth in the near future. Crockett has a Buy rating on META stock with a price target of $811, suggesting an upside of almost 40%.
Is Meta Platforms Stock Cheap?
META is currently trading at 23.87 times next year’s earnings, making it cheaper than the S&P 500’s forward P/E estimate of 24.15x. Let’s say if the company grows by 13.5% each year for the next 10 years (half of its average growth rate over the past 5 years) and keeps a P/E ratio of about 24, META’s stock could reach $2,080 in 10 years. However, the stock is currently not as cheap as I would like it, but it’s not expensive either.
Is META Stock a Buy According to Analysts?
On TipRanks, META stock has a consensus Strong Buy rating based on 42 Buys, 4 Holds, and 1 Sell ratings assigned by Wall Street analysts in the past three months. The average Meta share price target of $627.02 represents an upside of 7.73% from current levels. Meanwhile, the Street’s high price target of $811 represents an upside of 39% from current levels.
See more META analyst ratings.
The Takeaway
Meta Platforms continues to grow even after two decades in business, reaching a trillion-dollar valuation. Despite its size, the company keeps attracting new users thanks to its ongoing innovation aimed at enhancing user engagement. The combination of more users and higher ad prices will likely drive improvements in both revenue and profits. While the stock has risen significantly this year, there’s still potential for further growth.
With the company’s promising growth potential in AI-enabled digital advertising, Meta Platforms is one of the best investment ideas for the next decade. Nonetheless, I would recommend waiting for a slight pullback before buying to secure a better bargain.
