A lot has changed for Meta Platforms (META 2.33%) in the past five years. In 2018, the company was still known as Facebook, and it was dealing with severe image issues related to data breach scandals.
The social media company has somewhat successfully tried to leave these troubles behind; that's probably part of the reason it changed its name. However, Meta Platforms is now dealing with a different set of problems. How will the company endure these new challenges in the next half-decade? And are the company's shares a buy today?
Expect a rebound in online advertising
Few companies are entirely immune to economic challenges. Meta Platforms isn't one of them. Over the past year, the company's principal source of revenue, online advertising, has taken a major hit. Businesses reduced their advertising budgets amid rising costs and lower demand for a range of goods and services sparked by inflation.
Meta's top line declined last year for the first time in a while. The company's revenue came in at $116.6 billion, down 1% compared to 2021.
META revenue (annual YoY growth) data by YCharts. YoY = year over year.
Five years should most likely be enough time for the economy to recover from its most recent slump, lifting the online advertising industry. In fact, this market still has plenty of growth left. Online advertising allows for more-targeted and cost-effective marketing campaigns, giving businesses more bang for their buck. Some estimates suggest it will register a compound annual growth rate of 14.7% through 2027.
So, over the next five years, Meta's revenue should bounce back, given the 3.74 billion monthly active users across its websites and apps. This ecosystem is too large to ignore.
Ramping up additional sources of revenue
One of the great things about Meta Platforms is that it is arguably still in the early days of its efforts to monetize some of its apps, especially WhatsApp. To that end, the company has been working on paid messaging on the platform, a service it says is gaining steam.
There are also click-to-message ads (through which businesses can communicate directly with customers) on WhatsApp and Messenger. According to Meta, this feature already has a $10 billion revenue run rate. That's a little less than 10% of the company's revenue in 2022, but in five years, it will almost certainly account for a larger portion of the top line as it scales up.
There are more arrows in Meta's quiver. For instance, Facebook Reels (short-form videos) is growing quickly and represents another monetization opportunity. Or consider the e-commerce market, where the company has been looking to make headway for years.
Meta introduced features such as Facebook and Instagram Shops to help merchants sell online, especially making it easier for businesses to reach its vast user base. Its Shop Ads, which allow companies to roll out highly personalized ads based on users' shopping patterns, are growing steadily as well. E-commerce is another significant long-term opportunity, and in the next five years, expect the company to make solid headway on this front.
What about the metaverse?
Meta Platforms also changed its name to reflect its increased focus on the metaverse. Right now, the company's massive investments in this potential $1 trillion opportunity are not bearing fruit since the metaverse is just about up and running in a form that could be best described as work in progress. Will it be profitable in five years? My view is that it won't, so this should continue to be a drag on Meta Platforms' bottom line.
Last year, the company's net income declined by 41% year over year to $23.2 billion. But it is in the middle of a campaign to decrease expenses and costs. That includes layoffs and restructuring efforts.
These initiatives should help it better absorb metaverse-related investments and stay on track to profit from this lucrative opportunity.
Is Meta Platforms stock a buy?
Although it is facing challenges, I fully expect Meta to rebound in (less than) five years. The company's revenue should start growing again, as will the bottom line, eventually. At the same time, It will make solid headway in increasing monetization, leading to more sources of revenue.
That's why it's still worth buying shares of Meta Platforms today and holding them through the next five years.
