Throughout history, numerous one-time growth stocks have eventually experienced a slowdown in revenue increases and settled into a maturity stage. This happened to Coca-Cola (KO 1.50%) as its massive size made high-percentage growth more difficult.
Still, it faced an additional problem as its flagship product became available worldwide. With no new markets to conquer, growth slowed further, and revenue increases typically stayed at single-digit levels despite it acquiring other beverages.
Nonetheless, a track record of annual dividend increases has made the stock popular with more conservative investors such as Warren Buffett's Berkshire Hathaway. It also may serve as an example for a maturing company that has reached almost every corner of the world, Meta Platforms (META -0.52%).
Meta's Coca-Cola problem
Like Coca-Cola, the biggest problem for the Facebook parent is global saturation. In Q4, Meta Platforms reported a user base of 3.7 billion monthly active people. Since the world population is just under 8 billion, according to the Census Bureau, that means that over 46% of the world's population uses a Meta-owned site at least one time per month.
Furthermore, countries such as China, Russia, Iran, and North Korea block its sites, leaving out around 1.7 billion of that population. Considering that much of the underdeveloped world has no internet access, Meta has nearly reached a saturation point similar to that of Coca-Cola.
The company had hoped to draw continued growth through the metaverse, but that technology received a chilly reception from users. Also, Meta's advertising segment, which grew its revenue by 36% in 2021, experienced a 1% revenue decline in 2022. Since ads drove 97% of the company's revenue, that wiped out all growth for the previous year.
A conservative approach might boost Meta's stock
Moreover, contrary to some perceptions, Coca-Cola has outperformed Meta Platforms, and the recent tech bear market is not the only reason. Coca-Cola stock achieved higher returns over the last year, even after accounting for Meta's 140% recovery from the October low. Coca-Cola has also outperformed Meta over the previous five years, so this is not just a trend.
One might assume a widely covered tech stock like Meta would sell for a higher multiple. However, Coca-Cola is actually the more expensive stock, trading at a 28 P/E ratio versus 25 for Meta.
That return also doesn't count Coca-Cola's dividend. The company just hiked its payout and now offers shareholders $1.84 per share, a cash return of 2.9%.
Meta Platforms is not a dividend stock, but it could probably afford a payout. It currently holds about $41 billion in liquidity, and it generated $18 billion in free cash flow in 2022.
Furthermore, its metaverse segment, Reality Labs, reported an operating loss of $13.7 billion in 2022. That would have funded a $5.30 per share dividend, a cash return of around 2.5%. Such a payout would have probably received a warmer reception from investors than the company's metaverse investment.
The future of Meta Platforms stock
Meta will probably not redefine itself as a conservative, dividend-paying stock anytime soon. It forecast $30 billion to $33 billion in capital expenditures for 2023, closely matching 2022 levels. That indicates Meta has not given up on Reality Labs.
Nonetheless, the company's user base has shown little interest in its metaverse. Moreover, shareholders should not expect big revenue growth soon, as Meta predicts a slight year-over-year revenue decline in Q1. Considering Coca-Cola's higher returns and the growth of its dividend, one might wonder if Coca-Cola's approach would serve Meta's investors better.
