Meta Platforms (NASDAQ:META) isn’t a company that’s all about the metaverse, no matter what the company’s brass would have you believe about its name change and shift in identity. Rather, this is still a social media juggernaut, that happens to be a major player in generative AI. The metaverse, or the world of virtual and mixed reality, is certainly one area the company sees itself leading. But it’s the view of many long-term investors that META stock remains worth acquiring at current levels, due to the strength of its cash-flow producing business, and its long-term growth prospects.
Sure, the company might be burning billions on its quest to dominate the metaverse. And in many respects, I do think there’s something there.
Btu there’s also a reason why many long-term investors have stuck with this name through thick and thin. Here are a few reasons why I personally continue to hold the stock, and believe in its long-term growth prospects.
Meta Platforms and Generative AI
In Q4 2023, Meta Platforms’ competitors will feel the heat as Meta advances in generative AI. The company has just launched generative AI tools for Facebook and Instagram advertisers, enabling varied content creation.
Meta’s Ad Manager software now hosts generative AI tools, saving advertisers 5+ hours weekly. This technology is aimed at empowering content producers to create fresh or enhance existing content, a potential game-changer in the ad-supported social media market.
Mark Zuckerberg’s pivot to the metaverse has incurred significant costs, with a $21 billion operating loss since 2022. Yet, Meta aims to excel in the AI era, enhancing consumer connections, offering chat assistants, and refining image editing. For advertisers, Advantage+ tools boost targeting and optimize spending.
The King of the Digital Ad Business
Owning Facebook, Instagram, WhatsApp, and Messenger, Meta wields unmatched user influence. In the last quarter, the company reported 3.07 billion daily active users, essentially meaning 38% of the world’s population is on one of the company’s platforms every day. This scale drives a lucrative ad business, ranking second only to Alphabet (NASDAQ:GOOG) in the U.S. and globally.
Despite macro challenges, Meta’s ad revenue surged 11.8% year-over-year to $31.7 billion with a 41% operating margin. I think these numbers could see vast improvement, if and when the company’s significant investments pay off, or Meta simply stops the bleeding and focuses on its core business.
Digital ads will remain vital for Meta Platforms, but the company has stated its intention to diversify its revenue streams with ad-free, subscription-based memberships for Facebook and Instagram. Initially, this service will roll out in Europe, due to a much different regulatory environment in that market.
META Boasts Excellent Valuations
Despite this year’s substantial share price surge, META stock remains reasonably priced. Currently, it boasts a forward price-earnings ratio of 24.2-times, notably lower than the Nasdaq 100 Index average of 26.1-times. When compared to tech giants like Alphabet, Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), and Microsoft (NASDAQ:MSFT), Meta has the most attractive forward price-earnings ratio.
According to consensus estimates, Meta is poised for impressive growth, with an expected 11% revenue increase and 23.7% diluted earnings per share growth between 2022 and 2027. This makes the current valuation quite appealing.
Investing in the stock is warranted due to its social media and digital advertising dominance, even if the metaverse push proves fruitless.
Meta’s outlook is promising, priced at 24-times next year’s earnings and 5-times next year’s sales. Anticipated double-digit growth in sales and earnings through 2024 makes this valuation attractive. The digital advertising market’s rebound is underway, and Meta’s free AI offerings may draw more advertisers.
META Stock Remains a Strong Buy
Meta Platforms is a pioneering force in social media tech, introducing generative AI in 2023. The company has shown its intention to reduce its reliance on ad revenue, and diversify its business model, all while creating efficiencies within its core business. With these results now showing up in its numbers, there’s little reason to look at any other mega-cap tech stocks right now, in my view.
On the date of publication, Chris MacDonald has a LONG position in META The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
