After losing more than half its value last year, Meta Platforms (META -4.13%) stock has been on fire in 2023, with shares up roughly 51%. While that's nothing to sneeze at, that's just the tip of the iceberg compared to its long-term performance. In fact, since its debut as Facebook just over a decade ago, Meta Platforms has gained roughly 375% -- even after the stock's recent shellacking.
This leaves investors in a predicament. Given its significant gains over the past 10 years, would-be investors are left wondering if they've already missed the boat on Meta Platforms. Let's take a step back to see if the stock is still a buy.
Image source: Meta Platforms.
It's the economy
The economic headwinds that began in late 2021 have no doubt hampered the company's growth, as Meta Platforms gets nearly all its revenue from the digital advertising that appears on its platform. History shows the advertising budget is among the first to be slashed in times of economic uncertainty. Meta Platforms is the world's second-largest digital advertiser, with roughly 20% of the market, according to industry publication Digiday.
The downturn and the well-documented decline in ad spending have hit Meta Platforms hard, but this dark cloud has a silver lining. Once the economy regains its footing, the digital advertising spigot will reopen, and the ad dollars will flow once again, enriching Meta Platforms in the process.
A detour through the metaverse
With all deference to CEO Mark Zuckerberg, his recent focus on the metaverse turned heads. Over the preceding two years, Meta Platforms has spent nearly $24 billion to bring this vision to life. Not everyone believes this was a worthwhile investment. That said, the same technologies that focused on this virtual domain have other -- potentially lucrative -- applications.
It's no secret that Meta Platforms has a long history of developing artificial intelligence (AI) to recognize individuals in photos and recommend content for users of its social media platforms. By the same token, the company has used its algorithms to parse data and direct its advertising efforts.
Let's not forget the development of virtual reality (VR) and augmented reality (AR) that has many more applications than an all-encompassing metaverse -- with use cases in healthcare, education, and entertainment, among others. Meta Platforms will no doubt find other ways to capitalize on the money it spent to bring the metaverse to life.
The recent buzz surrounding ChatGPT and other chatbots shows that there's still plenty of runway ahead for AI-infused technologies -- an area in which Meta Platforms is well-versed.
A bit of perspective
"Past performance is no guarantee of future results," or so the old saying goes. It does, however, help provide necessary context. The present downturn notwithstanding, Meta Platforms has a history of market-beating growth. For example, as recently as 2021, Meta Platforms grew revenue by 37% and earnings per share by 36%. This illustrates that its current trials are born of the economic climate.
In the face of these headwinds, the company battened down the hatches, laying off 11,000 people, or 13% of its workforce, while cutting other costs to shore up its financial position. Recent reports suggest another round of layoffs is in the making, with thousands of additional staff cuts on the table.
Another factor that bears consideration is Meta's unrivaled reach and the corresponding network effect. At latest count, 3.74 billion people log into one of Meta's social media platforms every month, with 2.96 billion checking in daily. Advertisers will go where the eyeballs are, and there's no denying Meta's credentials in that respect.
Taken as a whole, the situation suggests that once the economy finds its footing -- which it no doubt will -- the new, leaner Meta Platforms is poised to come roaring back.
Don't take my word for it. UBS named Meta Platforms as a "Top Pick," citing the company as its "favorite name" in the internet space. The firm sees room for higher profits, driven by the aforementioned cost reductions and improving revenue growth. The firm believes the stock will also benefit from both estimate revisions and multiple expansions as the economy improves. Recent data points increase the likelihood that the firm's bull case will play out, pushing Meta Platforms shares as high as $331. This would represent potential gains for investors of 82% compared to Thursday's closing price.
You get what you pay for
The downturn has pushed Meta's valuation to historic lows, but it still is not what some investors would call "cheap," particularly in terms of traditional valuation metrics. The stock is currently selling for 4 times next year's expected sales when most experts agree a reasonable price-to-sales ratio is between 1 and 2. That said, given the company's impressive history and multiple competing growth drivers, I would suggest that Meta stock is a value at this price.
I'm not just saying that, either. I bought more shares of Meta Platforms stock just last week.
