investors in Meta platform (NASDAQ:Meta) The stock has had a great time over the past 12 months, with an incredible 150% return. However, with the addition of the company, apple and microsoft At a market capitalization of over $1 trillion, investors may wonder if this stock will still be a buy in 2024.
A resilient advertising business
The past few years have been a roller coaster for Meta’s core advertising business.
Most technology companies rose as demand for digital services (including digital advertising) exploded, starting with the big boom caused by the coronavirus pandemic.Meta’s advertising business is reported to be strong revenue Growth is expected to be 21% and 36% in 2020 and 2021.
However, the boom did not last long. The reopening of the global economy and a series of issues, including tightening Apple’s privacy policy and competition from video company TikTok, affected Meta’s results in 2022. In the same year, sales decreased by 1% and operating profit decreased by 25%. Investors used to Meta’s historic growth rates were shocked.
Fortunately, the economic downturn was temporary and Meta’s Family of Apps business was back on track in 2023. Full-year revenue increased 16% and operating profit increased 47%, partly due to cost-cutting efforts. Revenue and operating income for the fourth quarter increased 24% and 97%, respectively, compared to the same period last year.
Meta’s strong performance in 2023 proved the resilience of its business model in many ways. For example, despite being the most prominent social media networking company, the company expects to increase daily active users by 8% to 3.19 billion and monthly active users by 6% in 2023. We were able to increase this to 3.98 billion people. This amounts to approximately half of the world’s population. Approximately 8 billion.
The reach of Meta and its various platforms (Facebook, WhatsApp, Instagram, Messenger, etc.) makes it the go-to advertising service for businesses of all sizes. For example, up-and-coming e-commerce platform Temu spent nearly $2 billion on his platform in 2023 to acquire users.
As long as Meta can maintain and grow its user base (and engagement) over time, it will remain one of the most attractive digital advertising platforms on the planet.
Pour money into building the metaverse
While investors may no longer be concerned about Meta’s ability to reignite growth in its advertising business, their concerns are metaverse The Reality Labs division will remain in place.
The division had an operating loss of $13.7 billion in 2022, and wasted another $16.1 billion in 2023. Even more jarring for investors is that the sector’s revenue fell 12% in 2023, along with an 18% widening of its operating loss.
Meanwhile, Meta’s significant (and continued) investment in the Metaverse is poised to become the next big platform for social interaction and experiences, where physical boundaries disappear and anyone can connect from anywhere. It seems reasonable because you are trying to build something that you expect to become. Share globally and interact in the same virtual space.according to Statista, The Metaverse industry could reach $508 billion by 2030, presenting the potential for significant financial rewards for winners. Therefore, it seems logical for Meta to spend billions of dollars to capture a piece of this opportunity.
Still, the industry is in its infancy and faces many risks and uncertainties. For example, we don’t know how long it will take for the Metaverse to reach the mainstream, or if it ever will. It may never gain much traction. Given the rapid pace of technological innovation, the emergence of new hardware and software, and the uncertainty surrounding regulation and business models, investors are wondering whether Meta’s early entry into the industry will provide a long-term advantage. I have doubts.
But since Meta is committed to building the Metaverse, investors must accept that profits from its cash cow advertising business will continue to be siphoned off to fund its operations. yeah.
What will be the meta evaluation?
Finally, no one should make a stock investment decision until they have considered the stock’s valuation.
As of this writing, Meta’s stock trades at a price-to-earnings multiple of 26, which is roughly in line with the company’s five-year average. For comparison, another major digital advertiser is alphabetthe PER is 29.
So investors don’t necessarily have to pay a huge premium to buy Meta stock now. But that still leaves investors with little margin for error.
Is Meta stock worth buying?
The investment theory for meta remains controversial.
On the positive side, the company demonstrated in 2023 that its advertising business, already huge, can continue to grow thanks to its extensive global footprint.
But the downside is that the company’s Metaverse efforts remain expensive, and it’s still unclear whether it will benefit shareholders. What’s certain is that Reality Labs will still need a big cash infusion from its family of apps business for the foreseeable future.
What’s more, the stock’s valuation isn’t cheap, making it a hold at best for existing investors. However, for those who have not yet incorporated meta into their portfolio, it would be wise to stay away from stocks for now.
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Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Motley Fool’s Ascent. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, JPMorgan Chase, Meta Platforms, and Microsoft. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has Disclosure policy.
Is Metaplatform stock a buy? Originally published by The Motley Fool
