While performing research for this article, I identified two more potential, positive catalysts (the monetization of messaging and new virtual reality products) and one more threat (an order against the company by the FTC) for Meta.
Additionally, I have learned that the company is advancing when it comes to utilizing artificial intelligence to enhance the quality of its ads and monetize them. Further, Meta is reportedly continuing to make progress when it comes to combating the negative impact of Apple’s (NASDAQ:AAPL) privacy changes on its business.
However, I still believe that META stock remains a “show-me” story at its current valuation. In other words, the shares aren’t a buy at this point, but if the company shows that it’s effectively exploiting its potential, positive catalysts while its threats are not pulling down its financial results, the shares could be worth buying down the road.
Meta’s Potential Messaging and AI Catalysts
Increased monetization of Meta’s messaging offerings could positively move the needle for the company’s shares in the not-too-distant future.
On the company’s fourth-quarter earnings call, Meta CEO Mark Zuckerberg reported that Meta’s “click to message ads [had] reached a $10 billion revenue [annual] run rate.” On its Q1 earnings call, the CEO stated that “the number of businesses using our other business messaging service paid messaging on WhatsApp has grown by 40% quarter-over-quarter.”
Messaging has likely already started to positively move the needle for Meta and META stock, and that trend could continue and intensify going forward.
On the AI front, which I explored in my previous column, Meta stated that “it would begin testing artificial intelligence-powered ad tools that can create content like image backgrounds and variations of written text.” That initiative could make the company’s ads more attractive to marketers, meaningfully increasing the number of ads that the company can sell and allowing it to raise the prices of its ads.
Further, Meta is using AI to provide better short-video recommendations to its users. As a result, ” Reelz monetization efficiency is up over 30% on Instagram and over 40% on Facebook quarter-over-quarter,” Zuckerberg reported.
The CEO believes that Reelz could contribute positively to the company’s profits in the short term. Eventually, Reelz’s profitability could become a meaningful, positive catalyst for META stock.
More Potential Positive Catalysts
And according to RBC Capital, a Canadian investment bank, Meta made progress last quarter on reversing the blow to its advertising dealt by the change to Apple’s privacy rules last year.
Finally, although I remain highly skeptical about the ability of the metaverse to positively move the needle for META stock, I’m more upbeat about the prospects of the company’s virtual reality products.
That’s because I believe that, although history shows that many consumers won’t spend much time in the metaverse, they do enjoy short ventures in imaginary worlds, such as those enabled by video games and Snap’s (NYSE:SNAP) augmented reality ( ) products.
As a result, I believe that two of Meta’s upcoming products— smart glasses and AR glasses — due out in 2025 and 2027, respectively, could become upbeat catalysts for META stock.
A Potential Threat
The Federal Trade Commission is proposing that Facebook no longer be allowed to generate profits from its users who are younger than 18. I believe that if the order is issued, it could potentially have a significant, negative impact on Facebook’s profits and on META stock.
The Bottom Line on META Stock
After META stock soared over 97% so far this year, giving the shares a price-earnings ratio of nearly 30, the name definitely isn’t cheap. As a result, before buying META stock, I would wait to see if any of the company’s potential, positive catalysts meaningfully boost its results. I would also wait a while before pulling the trigger on the shares to make sure that the FTC’s order does not pull down its top and bottom lines to a great extent.
On the date of publication, Larry Ramer did not have (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.