When Meta Platforms, then named Facebook, topped $1 trillion in market value in 2021, it joined an exclusive club of just five U.S. companies that ever hit that mark. But Mark Zuckerberg and his team had little time to bask in the glory. Within three months, Meta stock hit its all-time high — then began a brutal descent that knocked 77% off its price by late 2022.
Bruised but not beaten, Meta (META) picked up the pieces. It cut costs and revived its ad sales growth. The result: A 194% surge in the price of Meta stock last year. That was the second-best performance in the S&P 500, behind only Nvidia. The rally pushed up Menlo Park, Calif.-based Meta’s market capitalization to just north of $900 billion.
Now the social media giant, which turns 20 next month, seems poised for bigger gains that would let the company rejoin Apple (AAPL), Microsoft (MSFT), Amazon (AMZN) and Nvidia (NVDA) in the trillion-dollar club. This week, CEO Zuckerberg highlighted Meta’s bid to play a bigger role in the fast-growing tech trend: artificial intelligence. Yet Zuckerberg and his company have work to do to reclaim a trillion-dollar valuation — including demonstrating that its big bets on artificial intelligence and the metaverse are paying off.
“Meta completely turned around the story, and you have to give Zuckerberg credit in realizing what investors were looking for,” CFRA Research analyst Angelo Zino told Investor’s Business Daily.
What Powered The Meta Stock Turnaround?
A lot changed starting in 2021. Much of the change was not positive for Meta Platforms stock.
Team Zuckerberg launched an expensive and much-unloved journey into the metaverse, hence the new name. Meanwhile, privacy changes from Apple, combined with general economic unease, took a huge bite out of Meta’s lifeblood of ad sales. Finally, newcomer TikTok captured attention from Meta’s Facebook and Instagram.
The company entered 2024 in a much stronger position.
“I think you can definitively say that Meta has not only overcome those challenges, but it has actually emerged even stronger than it was at the close of 2022,” Debra Aho Williamson, an independent tech analyst, told IBD.
The turnaround in 2023 was powered by a return to double-digit sales growth for Meta’s digital advertising business. Further, Zuckerberg sold investors on a “Year of Efficiency” that included more than 20,000 layoffs and cutting back other expenses.
Other challenges lie ahead. Meta is dealing with lawsuits from state lawmakers who say its products are harmful. And in October, officials cautioned that the ad market is still unsteady. Beyond that, the firm’s big metaverse bet is a long way from paying off.
But Wall Street overall expects Meta Platforms to build on its growth this year. According to FactSet, 81% of the 63 analysts following Meta stock rate it as a buy. Analysts’ average 12-month target price for the stock is 389, which would place Meta at a market cap over $1 trillion. Meta stock closed Friday at 383.45.
Meta Stock Drivers: The Digital Ad Market
Meta’s revenue growth appears to be back on track. Analysts project that revenue will rise 13% to $151 billion in 2024, after climbing 14.5% last year, according to FactSet. Meta had a downbeat year in 2022, when revenue slipped 1.1% after surging 37% the prior year.
Despite the new name, Meta is still very much a social media business. About 98% of its revenue is from advertising on its “Family of Apps,” which includes Facebook, Instagram, Reels, WhatsApp and Threads. It’s a massive empire. Facebook alone had more than 3 billion active users as of October, the company said.
“Meta doesn’t have as many tentacles as some of these other Big Tech companies do,” Zino told IBD. Instead, Meta’s business “is more digital ad spend driven. How that performs in 2024 will ultimately be the key for Meta.”
That means the Meta stock story may be simpler for investors. But it also means Meta Platforms lacks the diversity of revenue enjoyed by other trillion-dollar companies. Amazon and Google, for example, have huge cloud services business to complement other offerings.
Ad market experts expect slightly slower advertising in 2024. Media investment group GroupM projects overall ad spending will grow 5.3% to $936 billion in 2024, a slight deceleration from the 5.8% growth for 2023.
Within the ad business, GroupM expects digital advertising spending to grow 7.3%, down from 9.2% in 2023.
Where Meta Platforms Shines In Ad Business
Meta is a clear market leader for digital ad sales. Insider Intelligence estimates the company captured 20.8% of all U.S. digital ad sales in 2023, and is expected to have 20.4% share in 2024. Only Alphabet’s Google has bigger projected share for both years.
Meta is looking to boost its platform’s capabilities.
In 2022, the company launched a series of AI-powered automation tools for businesses called Advantage+, which allow ad buyers to rapidly create and track campaigns. Meta said Advantage+ reached a $10 billion annual sales run rate in the third quarter.
Advantage+ helped Meta respond to privacy changes from Apple that made it harder to track user behavior and target advertisements. But it also added to what Williamson called a “world class” digital advertising system.
“Advertisers can basically go in and check a few boxes and launch your ad,” Williamson told IBD. “And that has really contributed, I think, to (Meta’s) long-standing success as an advertising platform.”
Other Meta Stock Challenges
The new tools also helped Meta fend off what Zuckerberg previously described as a “very effective competitor”: TikTok.
Roughly two-thirds of American teens told Pew Research in December that they use the short-video app. But that hasn’t translated to huge gains in digital advertising market share, according to data provided by Insider Intelligence. The research firm projects TikTok will capture 2.8% of U.S. ad spending in 2024, up slightly from a projected 2.4% in 2023.
Meanwhile, investors will be watching the progress of Reels, Meta’s response to TikTok, featured on Facebook and Instagram. After providing a drag on revenue in previous quarters, Zuckerberg told investors on Meta Platforms’ October earnings call that Reels is now neutral to overall sales. This year, Zuckerberg said Meta expects Reels to be a “modest tail wind” to revenue.
Meta also launched Threads in a bid to attract users from the flailing X, the platform formerly known as Twitter. After launching in the U.S. in June 2023, Threads quickly expanded to Europe in November. Zuckerberg said in October that the platform had just under 100 million users.
Meta Stock: The AI Factor
Meanwhile, Meta is making moves on the AI front. It launched its own large language model, called Llama, to power generative AI applications. In the fall, the company rolled out a series of consumer-focused chatbots, each designed to have a distinct personality.
Zuckerberg is an advocate for an open-source approach to AI. He’s focused on attracting software developers to create tools using Llama. But the open source model makes it unclear how or when Meta could monetize the technology.
For now, Zuckerberg said the company expects its chatbots and other AI tools to drive more engagement with its products.
“Whenever there’s more engagement in the apps, that creates the opportunity for more monetization,” Zuckerberg said on the company’s October earnings call.
He unveiled Meta’s bigger AI ambitions on Thursday, announcing in a Facebook post that the company plans to acquire billions of dollars worth of Nvidia chips as part of an ambitious plan to build a “massive compute infrastructure” to support its AI offensive.
“Our long term vision is to build general intelligence, open source it responsibly, and make it widely available so everyone can benefit,” Zuckerberg said.
Meta’s AI efforts haven’t received the same attention as Microsoft and Google. But Bank of America analyst Justin Post said in a December client note that the company has “underappreciated” AI strengths, including an internal AI supercomputer and its own large language model.
Meta stock also entered 2024 trading at 16 times its estimated 2025 earnings per share, as opposed to its five-year average of 19 times estimated future earnings, Post wrote.
“Growing optimism on Meta’s AI capabilities could drive multiple expansion for the stock,” he told clients.
Metaverse Losses: A Risk To Meta Stock?
Meta’s AI push led to speculation that the company was scaling back, if not abandoning, its bet on the metaverse. Zuckerberg and other company officials denied this, arguing that the generative AI initiatives contribute to Meta’s metaverse strategy.
“Two emerging technologies — AI and the metaverse — represent Meta’s biggest long-term bets on the future,” Meta Chief Technology Officer Andrew Bosworth wrote in a December blog post. “And in 2023 we began to see these two technological pathways intersect in the form of products accessible to huge numbers of people.”
A new version of the company’s Ray-Ban branded smart glasses includes the Meta AI chatbot.
“I think they want to change it to something more like ‘Welcome to the Met-AI-verse,” analyst Williamson told IBD, as opposed to the original message welcoming users to the metaverse.
Meta also launched sales of its latest VR headset, the Quest 3, in September.
But even with the new products, Meta’s metaverse business game plan remains fuzzy. The company’s metaverse-focused Reality Labs division has reported $37 billion in operating losses since Meta began reporting the division’s results separately in the December 2020 quarter. That’s against sales of just over $6 billion over that time, representing less than 1% of the company’s total revenue.
Concerns about the company’s metaverse spending faded into the background late last year as Meta’s core business posted impressive growth. But company officials have guided for deepening losses from Reality Labs this year, which could attract heightened scrutiny on Wall Street if Meta’s social media business stumbles.
Meta Earnings Forecast
Meta stock faces its first big test of the year when the company reports earnings Feb. 1.
Analysts project that Meta will post a 21% year-over-year sales increase to $38.9 billion for the fourth quarter, according to FactSet. They see earnings rising 175% year over year to $4.84 a share. For the full year, analysts project Meta’s earnings will increase 67% to $14.36 a share, compared with a 37% drop in 2022.
Market Hits Record Highs As Leaders Run; What To Do Now
Is Meta Stock A Buy?
Meta Platforms is on the IBD 50 list of top growth stocks. It’s also on the leaders list of the IBD Leaderboard premium stock ideas service. The stock held a Relative Strength Rating of 97 as of Friday, indicating it outperformed 97% of all stocks in the past 12 months. It also boasted a highest-possible 99 IBD Composite Rating, which reflects strength across a number of technical and fundamental metrics linked to superior stock performance.
The stock has exited the buy ranges of those rebounds, so investors should wait for a new base.
Meta Platforms After The ‘Year Of Efficiency’
Wall Street will still surely watch Meta’s spending throughout the year. Meta said in October that it expects full-year expenses for 2024 to fall between $94 billion and $99 billion.
The company told investors that it is spending more to develop AI database infrastructure and step up AI research. In a client note, Raymond James analyst Josh Beck called the AI costs an “understood near-term headwind” that could produce longer term efficiency gains.
When he unveiled Meta’s “Year of Efficiency” push a year ago, Zuckerberg told employees, “Change is never easy, but I know we’ll get through this and come out an even stronger company.”
Last year saw Meta recover after its roughest stretch as a public company. This year will test whether the tech giant can speed beyond the trillion-dollar highs of its Facebook era.
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