Investors can find winning companies to buy and hold by looking at stocks that have done well in the past. By adopting this approach, the hope is that businesses that were successful in the past can keep the good times rolling.
In more recent times, FAANG stocks have fit this description. Without a doubt, they are some of the most dominant enterprises the world has ever seen.
Take Meta Platforms (META 3.77%) in particular. In the past decade, its shares have soared 625% (as of Nov. 28), a gain that trounces the 252% rise of the Nasdaq Composite Index. This means that a $10,000 investment in the social media giant 10 years ago would be worth more than $72,000 today.
Let's take a closer look at Meta's past and see if the stock makes for a smart investment idea today.
Benefiting from broad secular trends
Founded in 2004, Facebook (Meta's prior name) started as a way for college students to connect with each other. It quickly made Myspace, the most popular social media site around that time, obsolete.
The founder and CEO Mark Zuckerberg saw his business benefit from multiple trends that helped lift it to new heights. Of course, we can't ignore the advent of the internet and more precisely, the rise in popularity of smartphones. These tech changes will continue to support Meta's growth.
These trends have resulted in a truly massive organization. As of Sept. 30, Meta counted a whopping 3.96 billion monthly active users (MAUs) across its family of apps, which include Facebook, Instagram, WhatsApp, and Messenger. This is up from 1.19 billion 10 years ago during Q3 2013.
Along with Alphabet, Meta has essentially helped to spearhead the digital-advertising market. In 2022, the company generated $114 billion from ad sales, putting it in second place in the industry on a worldwide basis.
Despite macro headwinds, Meta is still posting solid gains. Its revenue and MAU base were both up 23% and 7%, respectively, in the most recent quarter.
NASDAQ: META
Key Data Points
Economic moat
Meta's success can be attributed to some key advantages that make up its economic moat.
With such a huge user base, the business possesses network effects. The fact that nearly everyone you know is already on one of Meta's apps makes the service invaluable for newcomers and existing users. It gets more powerful the bigger it gets because there are exponentially more social connections that can be made.
To help illustrate Meta's dominance, consider how difficult it would be to scale a brand-new social media platform from scratch. The mobile app can probably be created rather quickly. But it would be hard to attract users. Why would they flock to the new site, one that has few users, instead of sticking to Meta's apps where everyone is? We've seen with TikTok, that although it was able to attract users, its platform couldn't match Meta's ability to adjust and continue reeling in users.
The result of this economic moat is that it's extremely difficult to envision a scenario where Meta gets disrupted by competitive threats. It's just already so ingrained in our society.
Looking at the future
Meta might be a completely different business if we look out toward the next 10 years. That's because Zuckerberg is intensely focused on developing the metaverse, a collection of virtual worlds that people can access with augmented reality (AR) and virtual reality (VR) headsets.
In fact, Zuckerberg has created a whole new segment, called Reality Labs, that houses these metaverse ambitions. And to date, the financial results have been disappointing.
Through the first nine months of 2023, Reality Labs has posted an operating loss of $11.5 billion on revenue of $825 million. And next year, executives see losses in the segment increasing due to higher investments.
But Meta still has a crown jewel cash machine in its social media apps that produce ridiculous margins and profits, helping reduce risk. And at a forward price-to-earnings ratio of 23.5, the stock looks like a smart buy for long-term investors even after its monumental rise in the last decade.
