Meta Platforms (FB 1.79%) has been in the news lately for the wrong reasons, as the stock was clobbered after the company's fourth-quarter 2021 earnings report on Feb. 2, wiping out $200 billion from its market cap in a single day.
Meta's massive drop was triggered by a muted forecast for the current quarter, as well as the company's struggle with Apple's privacy changes that are expected to cost the social media giant at least $10 billion in revenue this year. The Facebook parent now has a market cap of $546 billion, which is a sharp decline from its $1 trillion-plus market cap just six months ago.
FB Market Cap data by YCharts
Can Meta Platforms regain its mojo and become a trillion-dollar company once again? Let's find out.
Meta Platforms is down, but not out
Meta Platforms finished 2021 with annual revenue of $118 billion, an increase of 37% over the prior year. The company's earnings increased 36% in 2021 to $13.77 per share. The advertising business was the key driver of this impressive growth as it accounted for 97% of the company's top line. The segment's growth last year was driven by a 10% increase in ad impressions over 2020, as well as a 24% increase in the price per ad.
NASDAQ: FB
Key Data Points
In 2022, however, Meta sees a few headwinds hurting its ad revenue. The company points out that "increased competition for people's time and a shift of engagement within our apps" toward verticals with low monetization could weigh on its ad revenue growth. Additionally, tough year-over-year comparisons and the impact of inflation and supply chain challenges are likely to impact advertisers' budgets negatively.
Amid these challenges, Meta Platforms expects its revenue in the current quarter to increase just 3% to 11% to a range of $27 billion to $29 billion. For the full year, analysts are expecting Meta's revenue to increase 12.5% over 2021 to $132.6 billion, which would represent a substantial slowdown over last year's growth. The company's earnings are expected to head south as well, to $12.52 per share, an estimated drop of 9%.
However, Meta's growth is expected to pick up the pace in 2023. Its top line is expected to jump 17% to $155 billion, while earnings per share are expected to jump 17% to $14.7. What's more, Meta's top and bottom lines are expected to head higher in 2024 as well, as seen in the chart below.
FB Revenue Estimates for 2 Fiscal Years Ahead data by YCharts
It is not surprising to see why Meta's growth rate is expected to improve in the coming years. The company had a daily active user base of 1.9 billion in December 2021. Its monthly active user base stood at 2.9 billion at the end of last year. This huge user base makes Meta an ideal avenue for advertisers to spend their dollars and reach a wide audience.
According to market research firm eMarketer, advertisers spent nearly $492 billion on digital ads last year. This means that Meta's share of the digital ad market stood at just over 23% as the company had generated $115 billion in ad revenue in 2021. The research company forecasts that digital ad spending could increase to $785 billion by 2025.
If Meta controls a quarter of the digital ad market by then, its ad revenue could increase to $196 billion annually, up 70% from last year's levels. By 2030, digital ad spending is expected to jump to almost $1.5 trillion, indicating that Meta's ad revenue could more than triple in the next eight years.
But, there is an additional catalyst that could come into play and help Meta grow at a faster pace.
This catalyst could supercharge the tech giant
In October 2021, CEO Mark Zuckerberg announced that Facebook was being renamed Meta Platforms to focus on the company's efforts to develop the metaverse, a three-dimensional virtual world wherein people can work, socialize, play, collaborate, learn, or interact with each other. In his 2021 founder's letter, Zuckerberg wrote: "From now on, we will be metaverse-first, not Facebook-first. That means that over time you won't need a Facebook account to use our other services."
Image source: Getty Images.
So, Meta Platforms can unlock an entirely new advertising opportunity with the metaverse, where marketers can spend money on ad space within the virtual world. According to Gartner, 25% of the people are expected to spend at least one hour within the metaverse by 2026 for work, shopping, entertainment, education, or social interactions.
As a result, the metaverse could create another sphere for digital marketers to target. Bloomberg estimates that the global metaverse market could generate $800 billion in revenue by 2024, while another estimate puts the size of the market at $1.6 trillion by 2030. All of this indicates that the metaverse could be the next growth frontier for Meta Platforms.
Will it become a trillion-dollar stock again?
Analysts expect Meta Platforms' earnings to increase at an annual rate of 21% for the next five years. However, the secular growth of its end market and the addition of new revenue opportunities due to the metaverse could help it grow at a faster pace.
Assuming Meta Platforms' earnings grow at an annual rate of 25% through 2030, then the company's earnings could increase to $74.6 per share at the end of the forecast period. Now, Meta Platforms has traded at an average of 25 times forward earnings for the five years. Assuming a similar multiple in 2030, Meta Platforms' stock price could hit $1,865, which would be nearly nine times the company's closing stock price on March 2.
So, Meta Platforms can easily exceed $1 trillion in market capitalization by 2030 and become worth much more than that. That's why it would be a smart idea to use Meta stock's drop and buy it for the long run as it is trading at less than 15 times earnings right now.
