Source: PaxForex Premium Analytics Portal, Fundamental Insight
Following a lackluster performance in 2022, Meta Platforms shares have shown an impressive resurgence in 2023, surging by approximately 162% as of the latest data, which is over 13 times the gains of the S&P 500. This represents a remarkable turnaround from the previous year when the stock plummeted by more than 64%.
The remarkable gains this year are attributable to the company's return to revenue growth after a series of declining quarters. Furthermore, Meta Platforms has benefited from the potential implications of its utilization of artificial intelligence (AI).
Investors who abstained from joining the current upward trajectory of Meta Platforms are now facing a dilemma. They must decide whether to buy the stock in anticipation of further gains or exercise caution due to the stock's lofty valuation and the lingering uncertainties in the digital advertising industry. Let's delve into this matter.
The broader economic challenges that dominated headlines in the previous year affected many companies, but Meta Platforms arguably bore the brunt of the impact. It's well-documented that in response to challenging economic conditions, marketers tend to reduce their advertising expenditures, as advertising budgets are adaptable on short notice. Furthermore, Meta Platforms derives the majority of its revenue from digital advertising on its family of social media platforms. In fact, as the world's second-largest online advertiser, commanding 20% of the market, the company is particularly susceptible to economic downturns.
While most technology stocks faced difficulties in the past year, the decline in marketing spending led Meta to report three consecutive quarters of year-over-year revenue declines, marking the first such occurrences in the company's storied history. Naturally, investors were concerned, and the most risk-averse among them abandoned the stock. However, their shortsightedness proved costly as the company made a strong comeback this year, with digital advertising rebounding and Meta Platform's investors reaping substantial gains.
Nevertheless, this recovery has only just begun. In the second quarter, the company achieved an 11% year-over-year growth in revenue, accompanied by a 21% increase in earnings per share. This positions Meta Platforms within striking distance of attaining new record highs in both sales and profits.
Apart from the ongoing rebound in online advertising, there are additional factors that could drive Meta Platforms stock to greater heights.
One notable development this year is the rise of Generative AI, and Meta Platforms has positioned itself to benefit from these recent advancements. While the company has long employed AI for various purposes, it now has plans to apply these cutting-edge algorithms to its digital advertising endeavors. Meta is among the few companies with the necessary resources to develop the large language models required for creating generative AI models.
In a recent move, Meta introduced a suite of AI-powered marketing tools for merchants advertising on its platforms. The new features in Meta's Ads Manager allow for customized images and text, enabling merchants to better target their desired audiences. AI assists in creating backgrounds, easily adjusting aspect ratios, and generating multiple versions of an ad to suit various advertising channels.
While the widespread use of AI may be a future prospect for some businesses, Meta is already harnessing this technology to jump-start its growth.
Currently, Meta's stock is trading at 37 times trailing 12-month earnings and approximately 7 times sales, making it less of a bargain. It's understandable that some investors might choose to be cautious given this somewhat inflated valuation.
However, when you consider Meta's future prospects, the picture becomes much more favorable. It's valued at only 24 times next year's earnings and 5 times next year's sales. Why? Because the company is anticipated to return to double-digit growth in sales and earnings per share between now and the end of 2024.
The recovery in the digital advertising market is already underway, but there's still substantial room for expansion. Meta is generously offering its AI expertise to advertisers at no cost, potentially attracting a growing number of them to its platform.
Despite the potential for market volatility due to ongoing economic uncertainties, investing in Meta Platforms now could prove to be a savvy move in five or ten years, especially given the extensive growth prospects on the horizon.
As long as the price is above 320.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 325.48
- Take Profit 1: 328.00
- Take Profit 2: 335.00
Alternative scenario:
If the level of 320.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 320.00
- Take Profit 1: 316.00
- Take Profit 2: 312.00
