There are just five U.S. giants that can claim to be part of the elite club of corporations with a market cap of $1 trillion. Meta Platforms (NASDAQ: META), formerly known as Facebook, may, nevertheless, be the next company to join this select group.
Currently valued at around $770 billion, it is very close to reaching the $1 trillion barrier. But is it attractive to invest in Meta Platforms now?
Fueling Metaverse Dreams with Advertising Dollars
The Family of Apps and the Reality Labs are the two main platforms on which Meta Platforms performs its business tango. The ad money generated by popular apps like Facebook, Instagram, Messenger, WhatsApp, and the brand new Threads app is what keeps the Family of Apps segment afloat.
On the other hand, Reality Labs is where cutting-edge Metaverse features like the mixed-reality Meta Quest Pro headset may be found.
The paths of these two subgroups couldn’t be more dissimilar from one another. The Family of Apps business unit is thriving and making a lot of money.
Reality Labs, on the other hand, looks to be the draining side of the equation, losing money as it shrinks. The Family of Apps, thankfully, is king and provides financial stability for Meta.
Sales for the Family of Apps segment increased by a stellar 12% year over year, reaching a record-breaking $31.7 billion in the second quarter. Meta reaped $13.1 billion in operational income from this boon, resulting in a whopping operating profit of 42%.
These are truly staggering numbers that demonstrate Meta’s competence even while distracted by activities in the metaverse. Reality Labs, in contrast, struggled and reported a 39% decline in revenue to $276 million.
Reality Labs’ operational loss was $3.7 billion, for an operating loss margin of 1,355%, adding insult to injury.
Even while such a thin margin is enough to send shivers up some people’s spines, Meta has been making impressive achievements in this area, and not by bringing in more money, but by cutting costs.
Many people think that Meta should just stick to its Family of Apps, but Mark Zuckerberg, the company’s CEO and founder, has a different plan. There is definitely space for improvement, but fortunately he has taken moves toward a more efficient operating model.
While 2023 has been labeled by Zuckerberg as the “year of efficiency,” 2024 is expected to have a different tone. Meta is looking toward the future of AI, which will require investments in new technology and a larger, more skilled staff.
The third quarter, however, looks to be a smashing success for Meta, with revenue increasing by an anticipated 20%.
With an uptick in money, Meta is free to pursue its many objectives. But will it be able to soar past the $1 trillion mark?
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A Stock Ripe for Further Gains
The $1 trillion mark is tantalizingly close for Meta Platforms, which needs only a 30% increase. Still, this year’s 150% increase plus the additional 30% is no mean feat. Meta’s undervaluation at the beginning of the year is mostly responsible for this increase.
While Meta was undoubtedly mispriced at previous levels, the business is now trading at a premium, which may act as a drag on its pursuit of a $1 trillion market cap. However, this does not account for any prospective future earnings.
Analysts expect strong earnings growth in the coming year, therefore Meta’s forward price-to-earnings (P/E) ratio of 22 is very low.
While a prospective P/E of 22 indicates that Meta Platforms is not overvalued, a P/E of 35 raises eyebrows.
With the advertising business showing signs of life again, Q3 revenue is projected to increase by 20%, and the fourth quarter may see similar growth.
For this reason, it wouldn’t be strange to see Meta’s stock price continue to rise in the months ahead, maybe pushing it above the $1 trillion mark in 2024.
The year 2023 has been off to a great start for Meta, and the company’s growing growth suggests that more success is just around the corner.