Source: PaxForex Premium Analytics Portal, Fundamental Insight
Over the last five years, Meta Platforms has seen its shares climb by 164%. Although impressive, this growth has been accompanied by significant volatility. Nevertheless, Meta has outperformed the Nasdaq Composite index, which returned 130% during the same period.
While past performance doesn't guarantee future results, many investors remain optimistic about continued success. So, where might this "Magnificent Seven" stock be in five years?
Meta is renowned for its suite of popular apps, including Facebook, Instagram, WhatsApp, and Messenger, which together boast an astounding 3.24 billion daily active users - equivalent to 40% of the global population. This user base grew by 7% year-over-year in Q1.
In 2023, this segment generated $133 billion in revenue, accounting for 99% of the company's total. It's an extremely profitable area, with the operating margin at 47% last year, increasing to 49% in the first quarter of 2024.
Looking ahead to 2029, it's highly likely that these social media apps will continue to be the primary drivers of Meta's financial performance. Meta's powerful network effects create substantial barriers to entry and scale for competing apps, making its dominant position difficult to challenge.
At a fundamental level, the human desire to connect will persist, and Meta's platforms will continue to facilitate these connections.
There is a possibility, albeit small, that Meta's business could gradually evolve over time. Founder and CEO Mark Zuckerberg is optimistic about the metaverse's potential, which is part of the company's Reality Labs division. He has even expressed a goal of reaching 1 billion users in the metaverse eventually.
Reality Labs focuses on developing both hardware and software, but achieving financial success in this segment has been challenging. Significant investments are needed to develop the technology, leading to high operating losses, which exceeded $15 billion on an annualized basis in Q1. Demand has also been lackluster, with revenue reaching only $2 billion over the past year.
Despite these challenges, Meta is well-positioned to become a leader in artificial intelligence (AI) over the long term, whether through innovative ways to connect its user base or by better serving advertising customers. With free cash flow totaling $43 billion in 2023 and cash, cash equivalents, and marketable securities amounting to $58 billion, the company has substantial financial resources to pursue its ambitions.
Meta's competitive advantages and strong financials are noteworthy attributes that make it a company worth watching. However, it's crucial to consider the current valuation before investing in the stock with the expectation of future gains.
Currently, Meta's shares trade at a forward price-to-earnings ratio of 25.4, significantly higher than the multiple of around 10 that the stock had about a year and a half ago. Nevertheless, this valuation remains attractive.
Wall Street consensus analyst estimates project that Meta will grow its revenue and earnings per share at compound annual rates of 14.1% and 20.7%, respectively, from 2023 to 2026. If these gains continue beyond this forecast period, the stock is likely to continue rewarding shareholders over the next five years.
As long as the price is above 510.00, follow the recommendations below::
- Time frame: D1
- Recommendation: long position
- Entry point: 528.83
- Take Profit 1: 535.00
- Take Profit 2: 545.00
Alternative scenario:
If the level of 510.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 510.00
- Take Profit 1: 490.00
- Take Profit 2: 480.00
