For many investors, the ultimate goal of investing is to retire a millionaire. However, not every stock in your portfolio will generate millionaire-making gains over the long run -- and some might even go to zero.
A few years ago, Meta Platforms (META 0.18%) -- the tech giant formerly known as Facebook -- seemed like a millionaire-maker stock. It shared a near-duopoly with Alphabet's (GOOG -0.63%) (GOOGL -0.75%) Google in digital ads across many countries, and its sprawling ecosystem of apps locked in billions of users worldwide.
But this year, Meta's stock was nearly cut in half after it warned investors of a near-term slowdown in its fourth-quarter report in early February.
Can Meta still bounce back and generate millionaire-making returns over the long term, or are its high-growth days finally over? Let's see whether Meta can still turn a $50,000 investment into $1 million over the next 20 years.
The story thus far...
Meta went public at $38 per share in 2012. Between 2012 and 2021, its annual revenue rose from $5.1 billion to $117.9 billion, representing a compound annual growth rate (CAGR) of 41.8%.
During those nine years, Facebook's monthly active users (MAUs) increased from 1.06 billion to 2.91 billion. Its entire family of apps -- which include Facebook, Messenger, Instagram, and WhatsApp -- were also accessed by 3.59 billion people monthly in the fourth quarter of 2021.
Those impressive growth rates propelled Meta's stock to an all-time high of $382.18 last September -- which netted a 10-bagger gain for its initial public offering (IPO) investors. However, it subsequently pulled back to the low $180s.
The next 10 years...
Meta faces significant challenges this year as it adapts to Apple's (AAPL 1.07%) privacy update on iOS devices (which allows users to opt-out of data-tracking features) and chases ByteDance's TikTok with new short videos on Facebook Stories and Instagram Reels.
It also plans to ramp up its spending on its Reality Labs segment -- which racked up a $10.2 billion operating loss last year while generating just $2.3 billion in revenues -- with new virtual reality (VR) headsets and augmented reality (AR) devices.
Meta has already shipped about 10 million Quest 2 headsets since late 2020, and it will likely launch a new VR headset this year. It also took a step into the AR market with its Ray-Ban Stories smart glasses, and it intends to launch three higher-end AR devices in 2024, 2026, and 2028.
The expansion of that ecosystem could blend its social networking platforms, VR worlds, and AR services into a cohesive "metaverse" that blurs the lines between the physical and digital worlds.
Meta's VR playground Horizon Worlds only serves about 300,000 MAUs today, but it plans to keep selling its headsets at thin margins (or losses) to tether more users to its virtual world. Once those users are locked in, Meta will try to recoup those costs by taking a near-50% cut of each game, experience, and digital asset sold within its walled garden.
The following 10 years...
If Meta's plan succeeds, it can diversify its business away from targeted ads and rely more heavily on its metaverse revenues. That foundation could support additional services -- including games, digital payments, and online shopping -- and attract more consumers, developers, and merchants.
However, three main threats could prevent Meta from achieving that goal. First, Apple, Google, and other tech giants are also creeping into the same space with their own products. Apple and Google could also leverage their dominance of the smartphone OS market to launch bigger metaverse platforms.
Second, antitrust regulators could still force Meta to spin off Instagram, WhatsApp, and Oculus VR into separate companies -- which could prevent it from funneling more users from its mobile apps to its metaverse platform.
Lastly, the metaverse could still fail to transition from a niche market to a mainstream one. If that happens, Meta will be forced to fall back on its advertising business, which could struggle to grow as Apple and Google both tighten their privacy standards for third-party data-tracking features.
Meta won't generate millionaire-making returns on its own
Meta still has room to grow, but it probably won't generate a 20-bagger return -- which would boost its market cap to $10 trillion -- in just 20 years. It's already serving nearly half of the world's population and faces intense competition from nimbler social media players like TikTok.
In a best-case scenario, I'd expect Meta's revenue to grow at a CAGR of 15% over the next 10 years as its core advertising business matures and it gradually recognizes more revenues from its Reality Labs business.
Assuming its growth then cools off to a CAGR of 10% over the following 10 years, it could generate $1.25 trillion in revenues by 2042. If it still trades at about four times sales, it would have a market cap of $5 trillion -- which would represent a respectable 10-bagger gain in two decades.
However, its actual return will likely be much lower, since my projection doesn't factor in steep economic downturns, disruptive threats, or the stagnation of Meta's core advertising business. Therefore, investors looking for a hypergrowth stock with millionaire-making potential should probably forget about Meta and seek out smaller, more speculative plays instead.