Meta (NASDAQ: META) shocked the market when it added a staggering $204.5 billion in market value after the release of the company’s Q4 earning report, marking the biggest one-day gain by any U.S. company in history. That’s not all, as META stock has skyrocketed by nearly 30% ever since, to a record $499.75, as investors couldn’t contain their excitement as Meta’s results surpassed all expectations.
In February, Meta dropped another bombshell on its investors: the announcement of its very first dividend, a move that was unexpected and caught many investors off guard, signaling a new era of maturity and stability for the tech giant. Now, META stock is very close to its 52-week high, and everyone who isn’t a shareholder is now wondering if they missed out on an amazing once in a lifetime run.
The Driving Forces
After this massive move on the 2nd of February, the parent company to Facebook and Instagram now has a market value of $1.27 trillion. What contributed the most to this is Meta’s higher-than-expected advertising revenue of $38.7 billion, compared with $31.25 for the same period in the previous year, which was applauded by Wall Street analysts. The company managed to increase its advertising revenue significantly by implementing AI tools and technologies that recommended personalized ads for users of Meta platforms Facebook and Instagram, resulting in stronger than ever engagements.
While advertising and AI are the focus of the day, CEO Mark Zuckerberg is still betting the Metaverse will be a long-term win. Meta’s Reality Labs unit, which focuses on virtual-world technology, generated more than $1 billion in revenue for the first time in the final quarter of 2023. Despite this, Reality Labs’ operating losses also increased to $4.65 billion from $4.28 billion from the same period in 2022, and the company said that it’s expecting the unit’s operating loss to increase even more in 2024.
Meta’s Current State
While we can’t be certain about what the Metaverse will look like in the future, we can still look at the company’s most recent financial results to see how it’s currently doing, and if it’s offering an investment opportunity or not. The business itself is doing really well, and this is evident in its Q4 earnings results. Meta reported a revenue of $40.1 billion, beating estimates of $39.18 billion and showing a revenue growth of 16% year-over-year, while its operating income grew by 62% year-over-year.
The company also beat estimates, as its EPS rose over 200% to $14 billion, or $5.33 per share, exceeding estimates of $4.97 per share, according to LSEG data. This extreme year-over-year profitability is partly thanks to the efforts Meta had undertaken to cut costs. You might remember that around a year ago, the company laid off 10,000 workers, or around 25% of its workforce, which definitely contributed to this profitability we’re seeing now.
But, even though the layoffs contributed to Meta’s recent growth, any investor that’s interested in the company should also be aware of the key driver of growth for the business in the long-term. In order to decide if it’s too late to get into Meta, or if the company still has room to grow and offers a great investment opportunity, we have to look at three metrics that could help interested investors make a decision regarding META stock.
The first one is the number of users. As of 2023, Facebook has around 3.03 billion monthly active users worldwide, while Instagram has 2 billion. Remember, these are just two of Meta’s offerings, and we didn’t even mention WhatsApp or Threads. According to Meta’s Q4 results, the company added around 300 million new active users year-over-year, which shows that despite the fact that the company is already massive with billions of users, it can still grow and attract more people to use its platforms.
The second metric investors should be aware of when it comes to Meta is the average revenue per user, or the price per ad, considering that Meta is primarily an ad business. The average price per ad on Meta increased by 2% year-over-year, also beating analysts’ expectations which said that the ad price will decline by 4% year-over-year.
As for the third metric, we have ad impressions, which are basically how many people saw the ad. The ad impressions for Meta increased by 21% year-over-year. When putting all the information from these metrics together, we could say that Meta still has room for growing its customer base, which is something many people online didn’t think was possible anymore because of how big the company is already.
AI Catalyst
A great catalyst for Meta is also its focus on AI. In the Q3 earnings call, Mark Zuckerberg touted Meta’s plans to invest in AI, stating that it would be the company’s biggest investment area in 2024. He also said in a video shared to Instagram earlier in January that the company would be acquiring $9 billion worth of Nvidia chips to support its push to scale AI for the long-term.
As for the short-term, AI could help Meta improve customer experience, ad efficiency, as well as the creation and automation of Meta apps. This is done through the use of advertiser-focused AI tools, which boosted the company’s advertising revenues in Q4 and are expected to help keep this momentum going.
The Dividend
There’s also another reason why many investors are jumping on the META stock bandwagon now, and it’s the company’s first dividend. Meta’s dividend has a yield of around 0.4%, and it’s paid out quarterly and amounts to $0.50 per share. The average yield for a dividend-paying stock in the S&P 500 is about 2%. Meta’s payout is lower than that rate, but companies typically start small. Investors can now look forward to dividend growth, as well as stock gains.
Take Microsoft (NASDAQ: MSFT), for example. The company declared its first cash dividend on the 16th of January, way back in 2003. It was an annual dividend of $0.08 a share, for a yield of about 0.3%. A year after, MSFT stock was 10% higher and the 2004 annual dividend was hiked to $0.16.
Microsoft grew rapidly over the years, and today pays a $0.75 quarterly dividend, and has paid a total of some $28 in cash dividends per share since 2003. That’s more than the stock price was when the first dividend was declared. Meta could definitely follow a similar path and increase its dividend as the stock price increases, meaning that META stock could start appealing to a broader range of investors, such as retail investors who only invest in dividends, or institutional investors who are restricted to just dividend stocks.
The Regulatory Risk
Since Meta relies very heavily on advertising revenue, especially from its social media platforms, any downturn in the online advertising market or regulatory changes affecting Meta’s advertising practices could adversely impact Meta’s financial performance. Meta’s business practices, especially those related to content moderation and the impact of its platforms on society, constantly face scrutiny. Negative perceptions regarding issues such as misinformation, hate speech, or the addictive nature of social media may lead to reputational damage and regulatory actions.
Lawmakers always want to know what social media platforms are doing to protect minors online, and very recently, CEO Mark Zuckerberg had to apologize to families who said their children were harmed by social media, during a fiery hearing in the U.S. Senate. Congress is currently developing a new type of legislation which aims to hold social media companies accountable for all the materials posted on their platforms, which could pose a significant risk to META.
META Stock Forecast
Even though the dividend is at a quite modest level right now, it still makes the stock attractive even after the 20% rise on the 2nd of January. This is because now that Meta executives, including CEO Mark Zuckerberg, are going to receive $2 per share this year, which gives them an advantageous position, meaning that it’s unlikely for them to sell their shares in the public market, which would support META stock’s price.
There are some risks surrounding Meta, which could make META stock take a slight dip, but if that happens, an opportunity will be created for all the value investors who wanted to buy META stock but were waiting for it to go down, so it might be a good idea for current META stock investors to keep holding their shares as the company rides out the regulatory waves.
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