Up 290% Since The Start Of 2023, Where Is Meta Platforms Stock Headed?

Meta Platforms stock (NASDAQ: META) has rallied 290% since the beginning of 2023, while the S&P500 gained 30% over this period. The stock is currently trading around $470 per share, which is 3% below its fair value of $485 – Trefis’ estimate for Meta Platforms’ valuation. The company outperformed the consensus estimates in the fourth quarter of 2023, with revenues increasing 25% y-o-y to $40.1 billion. It was mainly driven by a 24% growth in advertising revenues. Further, daily active users (DAUs) improved by 6% y-o-y to 2.11 billion for December 2023, followed by a 21% y-o-y increase in ad impressions and a 2% rise in the average price per ad across its Family of Apps. On the cost side, the total expenses reduced 8% y-o-y. Overall, net income jumped more than 200% to $14 billion.

Amid the current financial backdrop, META stock has seen extremely strong gains of 70% from levels of $275 in early January 2021 to around $470 now, vs. an increase of about 35% for the S&P 500 over this roughly 3-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. In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for other heavyweights in the Communication Services sector including GOOG, NFLX, and TMUS, and even for the megacap stars TSLA, MSFT, and AMZN. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could META face a similar situation as it did in 2021 and 2022 and underperform the S&P over the next 12 months – or will it see a strong jump?

The top line grew 16% y-o-y to $134.9 billion in FY2023. It was primarily because of a 16% growth in the advertising income. Notably, advertising contributes close to 98% of total revenues. Further, in terms of the key metrics, DAUs, and ad impressions improved 6% and 28% respectively. However, the average price per ad decreased 9% y-o-y. On the expense front, total expenses as a % of revenues witnessed a favorable drop over the same period. Altogether, the net income rose by 69% y-o-y to $39.1 billion. 

Moving forward, we expect the same momentum to continue in Q1. Overall, our estimate for Meta Platforms’ revenues is $157.6 billion for FY2024. Additionally, the adjusted net income is likely to remain around remain around $50.3 billion in the year. This coupled with an annual GAAP EPS of $19.43 and a P/E multiple of 25x will lead to a valuation of $485.

[1] Returns as of 2/8/2024
[2] Cumulative total returns since the end of 2016

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