Source: PaxForex Premium Analytics Portal, Fundamental Insight
Meta Platforms has been in the news lately for all the wrong reasons: after the company's Q4 2021 financial report, released on Feb. 2, the stock plummeted, losing $200 billion in one day.
The massive drop in Meta stock was caused by a worsening outlook for the current quarter, as well as the company's battle with Apple's privacy changes, which are ab\nticipated to cost the social media titan $10 billion in revenue minimum this year. Facebook's parent company now has a market value of $546 billion, down significantly from six months ago, when the company's market value exceeded $1 trillion.
Can Meta Platforms get back on track and become a trillion-dollar company again? Let's find out.
Meta Platforms ended 2021 with annual revenues of $118 billion, a 37% increase over the previous year. The company's 2021 earnings were up 36% to $13.77 per share. The advertising business was a key factor in this remarkable growth, as it accounted for 97% of the company's top line. The segment's growth last year was boosted by a 10% increase in ad impressions compared to 2020, as well as a 24% increase in price per ad.
This year, nonetheless, Meta sees several unfavorable factors affecting ad revenue. The company notes that "raised competition for people's time and a shift in activity in our apps" toward low-monetization verticals could negatively impact ad revenue growth. In addition, challenging year-over-year comparisons, the effect of inflation, and supply chain issues are likely to negatively impact advertisers' budgets.
Amid these issues, Meta Platforms anticipates its revenue this quarter to rise just 3 to 11 percent to $27 billion to $29 billion. For the full year, analysts expect Meta's revenue to grow 12.5% over 2021 to $132.6 billion, a significant slowdown from last year. Earnings are also expected to fall to $12.52 per share, down 9%.
Nevertheless, Meta's growth is expected to accelerate in 2023. The company's sales are expected to grow 17% to $155 billion, and earnings per share are expected to jump 17% to $14.7. Moreover, Meta's top and bottom lines are also expected to grow in 2024.
Not surprisingly, Meta's growth rate is expected to enhance in the coming years. In December 2021, the company had a daily active user base of 1.9 billion. At the end of last year, its monthly active user base was 2.9 billion. This huge user base makes Meta an ideal channel for advertisers to spend their dollars and reach a wide audience.
As per research firm eMarketer, advertisers spent nearly $492 billion on digital advertising last year. That means Meta's share of the digital advertising market was just over 23 percent, as the company generated $115 billion in ad revenue in 2021. The research firm predicts that digital ad spending could grow to $785 billion by 2025.
If Meta controls a quarter of the digital advertising market by then, its advertising revenue could grow to $196 billion a year, up 70% from last year. Digital ad spending is expected to jump to nearly $1.5 trillion by 2030, which means Meta's ad revenue could more than triple over the next eight years.
But there's another catalyst that could come into play and help Meta grow at a faster pace.
In October last year, CEO Mark Zuckerberg announced that Facebook was renaming itself Meta Platforms to focus the company's efforts on developing a meta world, a three-dimensional virtual world where people can work, communicate, play, collaborate, learn or interact with each other. In his founder's letter, published in 2021, Zuckerberg wrote, "From now on, we will primarily work on the metaverse, not Facebook. This suggests that over time you won't need a Facebook profile to use our other services."
So, Meta Platforms could open up a whole new advertising opportunity thanks to the metaverse, where marketers can spend money on advertising space in the virtual world. According to Gartner, by 2026, 25% of people are expected to spend at least one hour in the metaverse for work, shopping, entertainment, education, or social interaction.
Consequently, the metaverse could create another area for digital marketers. Bloomberg estimates that the global metaverse market could bring $800 billion in revenue by 2024, and another estimate puts the market at $1.6 trillion by 2030. All of this indicates that the metaverse could be the next frontier of growth for Meta Platforms.
Experts expect Meta Platforms' profits to grow 21 percent a year over the next five years. However, the secular growth of its end-market and the emergence of new revenue opportunities through the metaverse could help it grow at a faster pace.
Assuming Meta Platforms' revenue grows 25% a year through 2030, the company's earnings could rise to $74.6 per share at the end of the forecast period. Meta Platforms now trades at an average of 25 times its five-year earnings forecast. Assuming Meta Platforms' stock price is the same in 2030, it could reach $1,865, nearly nine times the company's current share price.
Thus, by 2030, Meta Platforms' market capitalization could easily exceed $1 trillion and become much more expensive. That's why it would be wise to take advantage of Meta's falling stock price and buy it for the long term since it is currently trading at less than 15 times earnings.
As long as price is below the 248.00 level, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 186.97
- Take Profit 1: 160.00
- Take Profit 2: 140.00
Alternative scenario:
If the level of 248.00 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 248.00
- Take Profit 1: 288.00
- Take Profit 2: 325.00
