Source: PaxForex Premium Analytics Portal, Fundamental Insight
Achieving a valuation of $1 trillion or beyond is undoubtedly noteworthy, given that there are currently only six companies that have attained this milestone. The anticipation surrounding the next contenders to join this exclusive club is equally intriguing. Among these prospects, Berkshire Hathaway, Meta Platforms (META 1.51%), and Tesla stand out, with valuations ranging from $760 to $780 billion.
Within this trio, I firmly believe that Meta Platforms is a strong candidate to achieve a $1 trillion valuation. Although the company has faced its fair share of challenges, it is actively addressing these issues and presenting itself as an attractive investment opportunity once again. However, the question remains: should investors take the leap and invest in this stock? Let's delve into the details.
Meta Platforms, formerly known as Facebook, occupies a unique position in the market. In a significant move in late 2021, the company rebranded itself as Meta, signaling its strategic shift towards the metaverse. This shift involved substantial investments in its Reality Labs division. Regrettably, these investments have not yielded the desired results. Since the fourth quarter of 2021, the Reality Labs division has managed to generate $3.65 billion in sales, but this has been accompanied by staggering operating losses amounting to $18.14 billion.
This dismal operating profit margin is cause for concern, particularly given the absence of any visible signs of improvement. In fact, the revenue for the second quarter of 2022 stood at a mere $276 million, marking the lowest figure recorded in years for which investors have access to data.
Fortunately, Meta's core revenue generator operates like a well-oiled profit machine. The Family of Apps division, which encompasses Facebook, Instagram, Messenger, WhatsApp, and the recently introduced Threads, thrives on advertising revenue. In the second quarter, this segment exhibited a remarkable 12% year-over-year growth, surging to $31.7 billion. Impressively, it also recorded an operating profit of $11.2 billion, effectively alleviating the challenges faced by the struggling Reality Labs division.
But how exactly will these developments propel Meta towards achieving a valuation of $1 trillion? CEO Mark Zuckerberg has honed his attention on enhancing efficiency.
Earlier in the year, Zuckerberg marked 2023 as the "Year of Efficiency" for Meta Platforms. He has remained committed to this vision by streamlining the workforce and reallocating resources away from lower-priority initiatives. This strategic shift has borne fruit, evidenced by Meta's improving operating margin over the past few quarters. This positive trajectory marks a notable rebound from the bottom observed in the fourth quarter of 2022.
Meta's strategic focus on enhancing efficiency serves as a catalyst for boosting its profits, thereby playing a pivotal role in its journey towards attaining a $1 trillion valuation. Over the span of the last five years, Meta has maintained an average price-to-earnings (P/E) ratio of approximately 25. This figure forms the foundation of our baseline valuation for the moment when Meta reaches the coveted $1 trillion milestone. As illustrated in the chart below, the company's current position is significantly beyond this threshold. However, the projection of forward earnings, based on analyst forecasts, hovers just below this mark. This intriguing dynamic suggests that Meta possesses ample room for multiple expansions in the coming year. This underscores the potential for Meta to experience a significant valuation increase as its operational efficiency continues to drive improved financial performance.
In the upcoming year of 2024, the consensus among Wall Street analysts anticipates Meta achieving $15.25 in earnings per share (EPS), signifying that the company is currently trading at a valuation equivalent to 20 times the projected 2024 earnings. If Meta were to realize the projected EPS of $15.25 and conclude the year with a valuation of 25 times earnings, this scenario would translate to a promising 25% increase from the present stock price.
Applying this projection to Meta's current market capitalization leads to an estimated valuation of $981 billion by the close of 2024. While this figure might not quite hit the $1 trillion mark, it paves the way for Meta to comfortably cross that threshold by 2025.
Moreover, with a projected upside of around 25% between now and the close of 2024, Meta emerges as an appealing stock prospect. It's also worth considering the possibility of Meta's earnings surpassing investor expectations or the stock commanding a higher valuation multiple. In such cases, Meta could very plausibly achieve a $1 trillion valuation as early as 2024. This underscores the potential for an advantageous investment opportunity in Meta, driven by both its projected growth and the prospect of positive surprises in the near future.
As long as the price is above 288.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 305.75
- Take Profit 1: 325.00
- Take Profit 2: 345.00
Alternative scenario:
If the 288.00 level is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 288.00
- Take Profit 1: 273.00
- Take Profit 2: 259.00
