Meta Platforms (NASDAQ:META) has been one of the brightest stars in the Magnificent Seven rally, with the stock delivering incredible multibagger returns from its 2022 selloff lows. I was pounding the table on META back then, seeing immense value in the company’s core business despite the market’s pessimism. And so far, that bullish thesis has played out exceptionally well.
Family of Apps Segment Thriving
Meta Platform’s “Family of Apps,” which includes Facebook, Instagram, Messenger and WhatsApp, continues to be a massive cash cow for the company. In Q1 of fiscal year 2024, advertising revenue from this segment grew a whopping 27% year-over-year to $35.64 billion, making up 98% of META’s total revenue. Daily active users are on the rise again, too.
What’s even more exciting is the integration of artificial intelligence into these apps could supercharge growth and engagement. Features like AI-powered content curation and ad targeting could be game-changers. Chief Executive Officer Mark Zuckerberg has grand visions for META’s AI future with the launch of the open-source Llama 3.1 model. While it has yet to be monetized, the potential is vast if the company can navigate the competition.
Metaverse Losses Overstated
Sure, Meta Platforms is still losing money on its ambitious metaverse investments under the Reality Labs division. But in the grand scheme of things, I believe the market is putting too much weight on these losses. The metaverse is clearly ahead of its time, and these are still the early innings. META’s core business is strong enough to subsidize these future bets.
Over the long term, Meta Platforms is well-positioned to capitalize on the megatrend of the “next evolution of social technology” as the lines blur between the physical and digital worlds. Analysts expect the augmented reality and virtual reality markets to grow at impressive rates through 2028. META’s head start in the space could prove very valuable down the road.
Risks to Consider
Nevertheless, consider notable risks in the near term.
Valuation is a big one. The stock has run up a lot, and the valuation looks quite rich. Earnings growth may need to catch up to justify the price.
Most importantly, a potential TikTok ban in the U.S. would be a huge boon for Meta Platforms, likely making it more relevant with younger users. However, the chances of a ban will look slimmer if the Trump administration takes over in 2024. Consistent user growth could be challenging with TikTok around.
Moreover, forecasts point to slowing global economic growth in 2024 and beyond. This could dampen digital ad spending, weighing on META’s primary moneymaker.
The Bottom Line
I still really like Meta as a long-term play. For instance, Instagram is still hugely popular with the younger generation and could fill in Facebook’s gaps in the long run. The company’s new quarterly dividend also adds to the appeal for patient investors.
However, after the massive run-up, I’m cautious about near-term upside in the stock. The valuation is getting stretched, and there are some potential stumbling blocks. Competition from TikTok remains fierce if a ban doesn’t materialize.
My current rating on Meta Platforms stock is a buy for those with long-time horizons. But I wouldn’t be aggressively pounding the table at these prices. Let’s see how the next few quarterly reports shake out before getting too excited. The magnificent rally may take a breather.
On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.