Meta Platforms’ (NASDAQ: META) stock jumped 15% during after-hours trading on Feb. 1 following its impressive fourth-quarter earnings report. The social media giant’s revenue rose 25% year over year to $40.1 billion and surpassed analysts’ estimates by $940 million. Its earnings per share (EPS) soared 203% to $5.33, exceeding the consensus forecast by $0.39.
Adding to the excitement, Meta announced its first-ever quarterly dividend of $0.50 per share, equating to a forward yield of about 0.4%. Additionally, the company increased its stock buyback authorization by $50 billion. These developments are undeniably bullish, but it’s worth noting that Meta’s shares have already surged by more than 140% over the past 12 months and are presently trading near their all-time high.
Given these impressive figures, many investors are pondering whether Meta’s stock has the potential to ascend even higher through the end of 2024.
Image source: Meta Platforms.
A Year in Review: Meta’s 2023 Journey
With a staggering 98% of its revenue generated from advertisements in 2023, Meta relies heavily on ad sales across its Family of Apps (Facebook, Messenger, Instagram, and WhatsApp) as well as its Audience Network for third-party apps and websites. The company encountered headwinds in 2022, including Apple’s privacy changes on iOS, intensified competition from ByteDance’s TikTok, and macroeconomic challenges that led many companies to curtail their ad spending.
However, the tides turned in 2023 as Meta’s ad sales not only stabilized but also accelerated. This resurgence was primarily fueled by increased advertising spending from Chinese e-commerce and gaming companies, striving to target a larger audience abroad. Chinese advertisers contributed 10% of Meta’s full-year revenue, driving 16% annual growth by a significant 5 percentage points.
By the close of 2023, Meta’s Family of Apps boasted 3.98 billion monthly active users, marking a 6% rise from the previous year. Facebook’s daily active users grew by 6% to 2.11 billion, while its monthly active users increased by 3% to 3.07 billion. This consistent growth cements Meta’s position as a premier platform for digital ads, indicating its resilience against potential obsoletion by TikTok.
Despite a 9% decline in the average price per ad, Meta compensated by augmenting its total ad impressions by 28%. Leveraging its AI-driven algorithms, Meta crafted better-targeted ads from its first-party data, while the expansion of its short video platform, Reels, attracted new advertisers and bolstered its competitive edge against TikTok.
Notably, Meta’s operating margin surged from 25% in 2022 to 35% in 2023, propelled by its accelerating ad sales and prudent cost-cutting measures. Although its Reality Labs segment widened its operating loss, Meta offset this through its robust ad revenue, enabling the company to invest in its metaverse business while still yielding healthy margins.
Furthermore, Meta’s free cash flow more than doubled in 2023, reaching $43 billion, thereby facilitating the company’s initiation of dividends and expansion of its stock buyback authorization. All signs point toward Meta being well-positioned to intensify investments in its key initiatives like Reality Labs, Reels, and AI chatbots, solidifying its user and advertiser base.
Foreseeing Meta’s Trajectory Over the Coming Year
In the first quarter of 2024, Meta anticipates a 20%-29% year-over-year rise in revenue, surpassing analysts’ projections for an 18% increase. This outlook, coupled with its current price of $455, positions Meta at an attractive 26 times forward earnings. However, as analysts recalibrate their estimates in response to the company’s optimistic first-quarter outlook, this multiple could contract.
Looking ahead, Meta plans to escalate spending on infrastructure upgrades, expand its workforce in priority areas, and develop new augmented and virtual reality products in 2024. As a result, the company foresees a 7%-12% increase in total expenses, from $88 billion in 2023 to $94 billion-$99 billion in 2024. Despite this uptick, Meta is expected to outpace the growth of its total revenue with prudent financial management throughout the year.
In my view, Meta’s stock is poised for upward trajectory over the next 12 months, fueled by optimistic analysts’ revisions and revaluation as a growth play. While investors need to remain mindful of Meta’s growing reliance on Chinese advertisers, regulatory hurdles, and its spending habits, the company undoubtedly possesses ample growth potential.
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