Where Will Meta Platforms Stock Be in 1 Year?

Meta Platforms' (META 0.43%) stock soared 15% during after-hours trading on Feb. 1 in response to its fourth-quarter earnings report. The social media giant's revenue rose 25% year over year to $40.1 billion and exceeded analysts' estimates by $940 million. Its earnings per share (EPS) jumped 203% to $5.33 and cleared the consensus forecast by $0.39.

To top it all off, Meta initiated its first-ever quarterly dividend of $0.50 per share -- which translates into a forward yield of about 0.4% -- while increasing its stock buyback authorization by $50 billion. Those are all bullish signals, but Meta's shares have already rallied more than 140% over the past 12 months and are currently trading near their all-time high.

Should investors expect Meta's stock to climb even higher through the end of 2024?

Meta Platforms CEO Mark Zuckerberg. Image source: Meta Platforms.

What happened to Meta over the past year?

Meta generated 98% of its revenue from ads in 2023. It sells ads across its Family of Apps (Facebook, Messenger, Instagram, and WhatsApp) and its Audience Network for third-party apps and websites. Throughout most of 2022, that core business suffered a slowdown for three reasons: Apple's privacy changes on iOS disrupted its ability to craft targeted ads, it faced stiff competition from ByteDance's TikTok, and fierce macro headwinds drove many companies to rein in their ad spending.

But throughout 2023, Meta's ad sales stabilized and accelerated again.

Data source: Meta Platforms. YOY = year over year.

That acceleration was driven by an influx of spending from Chinese e-commerce and gaming companies, which ramped up their advertising across Meta's platforms to reach more overseas users. Those Chinese advertisers accounted for 10% of Meta's full-year revenue and contributed 5 percentage points to its 16% annual growth.

Meta's Family of Apps ended 2023 with 3.98 billion monthly active people (MAP), which equaled a 6% increase from a year earlier. Within that total, Facebook's daily active users (DAUs) rose 6% to 2.11 billion while its monthly active users (MAUs) climbed 3% to 3.07 billion. That consistent growth enables Meta to retain its position as a top platform for digital ads, and strongly suggests it won't be rendered obsolete by TikTok anytime soon.

For the full year, Meta overcame its 9% decline in its average price per ad -- which was mainly caused by Apple's iOS changes, macro headwinds, and a higher dependence on overseas markets -- by increasing its total ad impressions by 28%. It achieved that growth by leveraging its own AI-driven algorithms to craft better-targeted ads from its first-party data. The expansion of its short video platform, Reels, also brought in new advertisers and widened its moat against TikTok.

Meta's accelerating ad sales and cost-cutting measures boosted its operating margin from 25% in 2022 to 35% in 2023, even as its unprofitable Reality Labs segment (which houses its VR and AR devices) widened its operating loss from $13.7 billion to $16.1 billion. In other words, the company can still subsidize the expansion of its loss-leading metaverse business with its higher-margin ad revenue.

In fact, Meta's free cash flow more than doubled for the full year to $43 billion, which gave it plenty of cash to initiate its dividend and increase its stock buyback authorization. So for now, it seems like Meta can easily afford to ramp up its investments in Reality Labs, Reels, and its AI chatbots to lock in its users and advertisers.

What could happen to Meta over the next 12 months?

For the first quarter of 2024, Meta expects revenue to rise 20%-29% year over year. That easily exceeds analysts' estimates for an 18% increase, and implies the consensus full-year forecasts for 12% and 18% revenue and earnings growth, respectively, are too low. Based on those expectations and a price of $455, Meta still looks reasonably valued at 26 times forward earnings. However, that multiple could contract as analysts hike their estimates in response to its rosy outlook for the first quarter.

For 2024, Meta expects to ramp up its spending on infrastructure upgrades, the expansion of its workforce in "priority areas," and the development of new augmented and virtual reality products. As a result, the company forecasts its total expenses to climb 7%-12%, from $88 billion in 2023 to $94 billion-$99 billion in 2024. But for the full year, Meta will still likely grow its total revenue at a faster rate than total expenses.

I believe Meta's stock will head even higher over the next 12 months as analysts hastily revise their estimates and the market revalues it as a growth play again. Investors should still keep an eye on its growing dependence on Chinese advertisers, regulatory challenges, and its spending habits, but the social media leader still has plenty of room to run.