META stock has seen extremely strong gains of 2x from levels of $275 in early January 2021 to around $560 now, vs. an increase of about 48% for the S&P 500 over this roughly four-year period.
However, the increase in META stock has been far from consistent. Returns for the stock were 23% in 2021, -64% in 2022, and 194% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 - indicating that META underperformed the S&P in 2021 and 2022.
For Q3 2024 Meta Platforms reported revenues of $40.6 billion, up 19% y-o-y. Meanwhile, the Operating Margin rose to 43% from 40% in the prior-year quarter. This resulted in an earnings figure of $6.03, up from $4.39 in Q3'23. Family daily active people (DAP) were 3.29 billion on average for September 2024, an increase of 5% y-o-y.
The company posted total revenues of $134.9 billion in FY 2023.
Below, we highlight key drivers of Meta Platforms' value that present opportunities for upside or downside to the current Trefis price estimate for META.
Meta Platforms is the world's most popular social network that helps people connect with family and friends. The company makes money primarily through advertising, which it provides to advertisers by targeting specific demographics based on information posted by users on its platforms. Also, it facilitates the purchase of virtual goods in games and applications running on its platform, charging a transaction fee for each purchase of virtual goods.
This remains the most significant division for META, contributing about 92% of its overall value. This high-value contribution can be attributed to two main factors: scale and user engagement. Meta Platforms has close to 4 billion monthly active users, and the user engagement within this base is also high. These stellar metrics are a result of innovative product development at the company, which includes Timeline, NewsFeed, Messenger, Search, and several other features designed with the long-term vision of ensuring that user stickiness remains high. In future years, both scale and user engagement are expected to be strongly driven by growth in the mobile space.
Coupled with the highly active user base, Meta Platforms has also achieved success with its monetization strategy. Its move to raise the proportion of feed-based ads and make the platform less cluttered has garnered success among marketers. Improvement in ad products, along with their targeting capabilities, has driven enhanced ROI and value for advertisers.
The monetization of Instagram and WhatsApp is paltry compared to some of its peers. In our view, Instagram's 1 billion+ active monthly user base, along with high engagement levels on the platform, will make it highly attractive to advertisers. The company has begun monetizing Instagram and we believe this could start providing meaningful revenues going forward. In addition, WhatsApp has more than 1.5 billion monthly active users. We believe the monetization rate for these platforms will improve in the coming years. We think this platform can be monetized in several ways, including annual subscription fees, in-app purchases, online payments, advertising, promoted accounts, social commerce, etc.
Meta Platforms also makes money by acting as a platform for the purchase of virtual goods on social gaming applications by partnering with gaming companies such as Zynga. Zynga's games like Farmville and Poker have been wildly popular, enabling it to extract substantial revenues from the sale of virtual goods like Poker chips. Recently, it has introduced a paywall for content providers. However, the ongoing shift towards higher mobile usage from desktop usage has caused pressure on this revenue stream. Payments from the gaming business on Meta Platforms could decline in the near term.
We think investments in diverse platforms (such as Messenger, Instagram, WhatsApp, Search, and Oculus) could reap multi-billion dollar businesses for the company in the long run, and management hasn't even begun scratching the surface of this potential. We think FB could start unlocking value in other businesses such as WhatsApp, Search, and Messenger over the coming years. Overall, we believe all these moving parts will continue to fuel the company's top-line growth for years to come.
The company is investing heavily in the metaverse and AI initiatives (around $18 billion in FY2023), which is expected to drive growth in the medium to long term. Its AI initiatives mainly focus on recommending relevant content across the products, enhancing advertising tools, and developing new products and features for existing products using generative AI. Further, the firm is also working on creating virtual, augmented, and mixed-reality devices, software for social platforms, neural interfaces, and other foundational technologies for the metaverse.
