Robinhood Markets made a name for itself as a go-to platform for younger investors. It revolutionized stock investing with its mobile-first, user-friendly platform and zero-commission trading, which kicked off a trend that spread across the industry.
The Robinhood Investor Index, which tracks its top 100 traded shares, offers valuable insights into what its users are holding. While the index includes speculative meme stocks like AMC Entertainment and GameStop, it also includes many blue chip and tech companies poised for explosive growth.
One stock moving up the list of Robinhood's most traded is Meta Platforms (META). Meta Platforms faced challenges in the last year, but it's positioning itself to be a dominant player in a potentially $8 trillion market. Here's why it could deliver market-crushing returns.
Meta will enter a 'year of efficiency'
Meta is coming off a tough year as digital advertising spending fell amid tepid customer demand and Apple's changes to its iOS, which impacted its ad targeting and measurement tools.
The average price per ad paid by customers dropped 16% during the year. However, ad impressions increased by 18% across its family of apps, including Facebook, Facebook Messenger, WhatsApp, and Instagram. So while it faced headwinds from a challenging macroeconomic backdrop, Meta's revenue fell just 1% from the prior year.
Its rapid expansion from adding 20% to its employee head count during the year weighed down its bottom line. As a result, income from operations fell 38% due to increased payroll and related expenses.
Meta founder and chief executive officer Mark Zuckerberg is taking action, ruthlessly cutting expenses, and calls this a "year of efficiency" for the company. In November, Meta announced it would lay off 11,000 employees and recently announced plans to cut another 10,000 jobs this year. These changes should help it operate more efficiently and boost its near-term growth.
The metaverse will require significant investment
Meta's cost-cutting measures have investors more optimistic, and the stock is up over 126% since its low in November 2022. While this will boost the stock in the short term, Meta's massive growth potential comes from its role in the metaverse.
It's been a slow start for this business following Meta's rebranding from Facebook in 2021. Last year, its Reality Labs segment, which accounts for its Meta Quest virtual reality devices and other metaverse projects, lost $13.7 billion. Its family of apps made a $42.7 billion profit in comparison. While analysts don't think the metaverse will generate meaningful earnings for years, Zuckerberg believes the metaverse is an essential piece of its future and could have more than 1 billion users globally.
Zuckerberg sees massive growth potential from the metaverse, and Citigroup agrees, saying the metaverse economy could be worth $8 trillion to $13 trillion by 2030. However, getting there will require significant investment, which Meta has committed to. Since 2019 it has spent over $36 billion on its Reality Labs segment.
Meta is on solid footing and positioned for the future
Aside from its metaverse ambitions, Meta's family of apps remain a go-to for digital advertising, accounting for 19.6% of all U.S. digital ad spending in 2022, second only to Alphabet's Google. It also sits on a healthy balance sheet, with cash, cash equivalents, and marketable securities totaling $40.7 billion, compared to $9.9 billion in long-term debt.
It'll likely face near-term headwinds if companies cut back on ad spending in the face of a potential recession, but its expense cutting will help balance out some of these declines. Analysts expect Meta's earnings per share to come in at around $9.72 on average, representing growth of 13% from the prior year.
Meta's push into the metaverse could take years to generate a profit. The past year has been challenging for the metaverse ecosystem, including non-fungible tokens (NFTs), which is likely why Zuckerberg shifted focus to its AI during a recent earnings call. However, I think its continued investments could give it a significant first-mover advantage -- giving this Robinhood stock massive long-term growth potential.