Will Meta Platforms Be a Trillion-Dollar Stock by 2030?

Meta Platforms (META -0.52%), the social media giant formerly known as Facebook, became a trillion-dollar company in June 2021. Three months later, its market cap peaked at $1.08 trillion.

But as of this writing, Meta is only worth $370 billion. It lost two-thirds of its value as the decelerating growth of its advertising business, the ongoing losses at its virtual reality business, and rising interest rates drove away the bulls.

Image source: Meta Platforms.

Those headwinds won't dissipate anytime soon, but Meta's stock also looks historically cheap at just 17 times forward earnings. Could this fallen FAANG stock regain its mojo and rejoin the 12-zero club by 2030?

Why did Meta Platforms lose its momentum?

Meta generated nearly 98% of its revenue from ads in the first nine months of 2022. It serves up those ads across its "family of apps," which includes Facebook, Messenger, Instagram, and WhatsApp.

That family of apps served 3.71 billion monthly active people in the third quarter of 2022, which represented 4% growth from a year ago. However, the growth of Meta's advertising business still slowed to a crawl in 2022.

Data source: Meta Platforms. YOY = Year-over-year.

That slowdown was caused by three main headwinds. Apple's (AAPL 1.27%) iOS update crippled Meta's ability to craft targeted ads with third-party data, ByteDance's TikTok pulled users and advertisers away from Facebook and Instagram, and businesses purchased fewer ads as the macroeconomic headwinds throttled their spending power.

To counter Apple, Meta has been fine-tuning its algorithms to collect more first-party data for targeted ads. It's also been aggressively expanding Instagram Reels to challenge TikTok, but it admits that short videos are much tougher to monetize than traditional ads. Both strategies will require Meta to ramp up its spending as its revenue growth stalls out.

At the same time, Meta continues to pour billions of dollars into its "Reality Labs" segment, which houses its virtual reality headsets and software. This division's revenue rose less than 3% year over year to $1.4 billion in the first nine months of 2022, but its operating loss widened from $6.9 billion to $9.4 billion. That pressure, along with the slowdown of its higher-margin advertising business, reduced Meta's operating margin from 40% in 2021 to 27% in the first nine months of 2022.

How Meta can regain its momentum

Analysts are overwhelmingly bearish on Meta's near-term prospects. For 2022, they expect its revenue to decline 1% to $116.3 billion, its operating margin to shrink to 26%, and its net income to drop 37% to $24.7 billion.

However, that outlook could improve over the next few years as the near-term headwinds dissipate. Meta's advertising revenues could stabilize and climb again as it gathers more first-party data and monetizes more Reels. The broader advertising market could warm up as inflation is reined in and the Fed stops raising rates. An outright ban on TikTok in the U.S., which has been proposed by lawmakers, would drive more revenue to Instagram.

Meta's Reality Labs investments could also finally bear fruit as it launches cheaper, lighter, and more powerful Quest VR headsets. The mainstream adoption of those devices might drive more users to Horizon Worlds, Meta's metaverse playground, which got off to a sluggish start after its initial launch in December 2021.

But if Reality Labs continues to burn billions of dollars without showing any signs of progress, Meta could either spin it off or shut it down. Either decision would likely be embraced by Meta's investors, since it would instantly boost its operating margins while freeing up more cash for the expansion of its core advertising business.

Lastly, Meta ended its latest quarter with $41.8 billion in cash, cash equivalents, and marketable securities. That massive war chest gives it plenty of room for fresh investments and acquisitions -- as long as antitrust regulators clear those deals.

Where could Meta's stock be in 2030?

For now, analysts expect Meta's revenue to rise 5% in 2023 and grow 12% to $136.3 billion in 2024. Its net income is expected to decline 11% in 2023 as it ramps up its spending, but increase 20% to $26.2 billion in 2024. Those long-term estimates, which we should take with a grain of salt, suggest Meta can eventually overcome its near-term challenges.

If Meta's business stabilizes in 2024 and it continues to grow its revenue and earnings per share (EPS) at a modest compound annual growth rate (CAGR) of 10% over the following six years, it could generate $240 billion in revenue with an EPS of about $16 in 2030.

If it's still trading at 17 times earnings and three times sales, its stock could reach $270 per share with a market cap of $720 billion. However, a slightly higher valuation could easily push Meta back past the trillion-dollar mark. Simply put, if Meta weathers its near-term slowdown and generates stable growth again, it might join the 12-zero club again by 2030.