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Will Meta Platforms Be a Trillion-Dollar Stock by 2030?

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meta platform (meta)The social media giant formerly known as Facebook.

However, as of this writing, Meta is only worth $370 billion. The company lost two-thirds of its value as slowing growth in its advertising business, continued losses in its virtual reality business, and rising interest rates drove off the bulls.

Image Source: Meta Platform.

While these headwinds won’t go away anytime soon, Meta’s stock price looks historically cheap at just 17 times expected earnings.did this fall FAANGStock Can we pick up momentum and rejoin the 12-zero club by 2030?

Why has the meta platform lost momentum?

Meta generated almost 98% of its revenue from advertising in the first nine months of 2022. We serve these ads across our “family of apps” including Facebook, Messenger, Instagram and WhatsApp.

This app family served 3.71 billion monthly active users in Q3 2022. This represents a 4% growth from a year ago. But growth in Meta’s advertising business is slowing even in 2022.

metric

2020

2021

First 9 months of 2022

Advertising revenue growth (YoY)

twenty one%

37%

0%

Gross Revenue Growth (YOY)

twenty two%

37%

0%

Data Source: Meta Platform. YOY = YoY change.

This slowdown was mainly caused by three headwinds. appleof (AAPL) An iOS update broke Meta’s ability to use third-party data to create targeted ads. byte danceTikTok has pulled users and advertisers away from Facebook and Instagram, and businesses have cut back on ad buying as macroeconomic headwinds constrained spending power.

To compete with Apple, Meta has tweaked its algorithms to collect more first-party data for targeted advertising. It’s also aggressively expanding its Instagram reels to take on TikTok, but admits that short videos are much harder to monetize than traditional advertising. Both strategies require Meta to spend more as revenue growth slows.

At the same time, Meta continues to pour billions of dollars into its “Reality Labs” segment, which houses virtual reality headsets and software. The division’s revenue grew less than 3% year-over-year in the first nine months of 2022 to $1.4 billion, while operating losses widened from $6.9 billion to $9.4 billion. Did. That pressure, combined with a slowdown in its high-margin advertising business, has reduced Meta’s operating margin from 40% in 2021 to 27% in the first nine months of 2022.

How the meta regains momentum

Analysts are overwhelmingly bearish on Meta’s near-term outlook. In 2022, it expects revenue to decline 1% to $116.3 billion, operating margin to decline to 26%, and net income to decline 37% to $24.7 billion.

That outlook, however, could improve in the years ahead as short-term headwinds abate. Meta’s ad revenue may stabilize and rise again as it collects more first-party data and monetizes more reels. The broader advertising market could warm up as inflation subsides and the Fed stops raising rates.Ann Total ban On TikTok in the United States, proposed by a member of parliamentbring more revenue to Instagram.

Meta’s investment in Reality Labs could also eventually pay off with the launch of a cheaper, lighter and more powerful Quest VR headset. Mainstream adoption of these devices will likely move more users to Horizon Worlds, Meta’s metaverse playground that got off to a slow start after its initial launch in December 2021. .

But if Reality Labs continues to waste billions of dollars without showing any signs of progress, Meta could spin off or shut down. Either decision is likely to be accepted by Meta’s investors.

Finally, Meta ended the latest quarter with $41.8 billion in cash, cash equivalents and securities. Its huge war chest leaves plenty of room for new investments and acquisitions, as long as antitrust regulators approve those deals.

Where will Meta’s stock price be in 2030?

For now, analysts expect Meta’s revenue to grow 5% in 2023 and 12% to $136.3 billion in 2024. Net income is expected to decline 11% in 2023 as it increases spending, but is expected to grow 20% to $26.2 billion in 2024. These long-term estimates suggest we should take it with a grain of salt.

If Meta’s business stabilizes in 2024 and earnings and earnings per share continue to grow (EPS) at a modest compound annual growth rate (CAGR) of 10% over the next six years, with an EPS of around $16 in 2030, could generate $240 billion in revenue.

If it’s still trading at 17x earnings and 3x sales, its stock could hit $270 per share, giving it a market cap of $720 billion. And Meta could easily be pushed back past $1 trillion. Simply put, if the meta weathers its near-term slowdown and resumes steady growth, it could rejoin the 12 Zero Club by 2030.

Randy Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Meta Platform CEO Mark Zuckerberg, is a member of the Motley Fool’s board of directors. Leo San He has positions at Apple and Meta Platforms. The Motley Fool holds positions with and recommends Apple and Meta Platforms. The Motley Fool recommends the following options: Apple’s March 2023 $120 Long Call and Apple’s March 2023 $130 Short Call. The Motley Fool Disclosure policy.

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