Throughout the tumultuous landscape of 2021-2022, Meta Platforms, previously known as Facebook, suffered a meteoric rise and fall from the trillion-dollar company pedestal. Struggling against the winds of change brought about by Apple’s privacy adjustments, the onslaught of competition from TikTok, and economic turbulence, Meta Platforms faltered.
However, the tides turned, and in January 2024, Meta Platforms regained its trillion-dollar status following a 20% surge in stock price post-earnings on Feb. 2, 2024. Now the burning question is, can this momentum propel Meta Platforms to a $2 trillion valuation by 2025?
Meta Platforms CEO Mark Zuckerberg. Image source: Meta Platforms.
Rekindling the Bullish Sentiment
The tale of Meta Platforms’ revenue is a rollercoaster ride—a 37% increase in 2021, followed by a 1% dip in 2022 as the company grappled with fluctuating advertising dynamics and massive expenses in its Reality Labs division. These issues caused its operating margin to plummet from 40% in 2021 to 25% in 2022, with a corresponding nosedive in earnings per share.
By November 3, 2022, its stock had reached a low of $88.91, and its market cap shrunk to $236 billion. Yet, the company managed to turn the tide in 2023. Revenues and EPS shot up by 16% and 73%, respectively, accelerating through all four quarters as it regained its foothold in the advertising domain. Operating margin saw an expansion to 35%.
This revival was steered by several factors. Notably, Chinese companies’ augmented advertising spending on Facebook and Instagram, a complete overhaul of the advertising algorithms to counter Apple’s iOS changes, and a resounding 28% increase in total ad impressions all played a pivotal role. Additionally, Meta Platforms’ Family of Apps saw a 6% jump in monthly active users to 3.98 billion globally for the full year, further buoying its ad revenues.
Simultaneously, despite investing heavily in the unprofitable Reality Labs, Meta Platforms doubled its free cash flow to $43 billion for the year, prompting a capital reallocation strategy with an augmented buyback authorization and the initiation of its first-ever quarterly dividend. This heralded the return of bullish investors.
A Glimpse into the Future
Market analysts foresee a promising trajectory for Meta Platforms. Projections suggest a compound annual growth rate (CAGR) of 13% in revenue and 22% in EPS from 2023 to 2026. Based on these prospects, the stock appears reasonably valued at 24 times forward earnings.
Metric | 2024 | 2025 | 2026 |
|---|---|---|---|
Estimated revenue growth | 17% | 11% | 12% |
Estimated EPS growth | 32% | 14% | 19% |
Analysts’ estimates. Data source: Marketscreener.
If Meta Platforms maintains its forward multiple and meets Wall Street’s forecasts, the stock could be trading at nearly $650 per share with a market cap of $1.65 trillion. Should the enthusiasm of investors propel the forward earnings multiple to 30, Meta Platforms may very well achieve a valuation just above $2 trillion by the end of 2025.
While it’s wise to approach long-term projections with a grain of salt, the potential for Meta Platforms to hit the $2 trillion mark by 2025 is undeniably feasible. This hinges on the company’s ability to stabilize its advertising arm, reignite its margin expansion, and achieve breakout success in its burgeoning metaverse business, expanding its sphere beyond its core apps and diversifying its revenue streams away from advertising.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Leo Sun has positions in Apple and Meta Platforms. The Motley Fool has positions in and recommends Apple and Meta Platforms. The Motley Fool has a disclosure policy.