Meta Platforms (META +0.42%) is coming off one of the best years in its history in 2024. The stock jumped 65% as it delivered strong growth throughout the year on the top and bottom lines.
Meta AI is used by more people than any other artificial intelligence assistant. It sold more than 1 million of its new Ray-Ban Meta smart glasses, and it posted growth in virtually every category and key performance indicator.
For the year, Meta reported 22% revenue growth to $164.5 billion, while its operating income rose 48% to $69.4 million, giving it an operating margin of 42%. In the fourth quarter, its biggest of the year, Meta's operating margin reached 48%, meaning it kept nearly one out of every two dollars it made in revenue before paying taxes. That's a hallmark of a dominant business and one with tremendous market power.
With the help of a lower tax rate, its net income jumped 59% to $62.4 billion, adding $23 billion in profit in just one year.
Its performance has marked a stark turnaround from the Meta of 2022, whose stock had plunged on a misguided venture into the metaverse. Meta is still burning billions on Reality Labs, losing nearly $18 billion in the segment last year, but its success with Meta AI and the momentum in smart glasses show that at least some of those investments are paying off.
One number in particular showed the strength of Meta's business last year.
Image source: Getty Images.
User growth is still soaring
At one point earlier in the company's history, investors focused closely on user growth as a sign of the underlying health of the business. It has stopped reporting user data by region, but it still reports daily active users across its family of apps, which includes Facebook, Messenger, Instagram, and WhatsApp.
The total daily active user base reached 3.35 billion in 2024, up 5%, meaning the company added 160 million users in one year, or roughly half of the population of the U.S. About 40% of the world's population now uses at least one Meta product.
No other company has that close a relationship with that many users, and it shows why Meta now has the most used AI assistant.
The growth and size of its platform is also driving the increases in its advertising business. Ad impressions were up 6% year over year, with 6% growth in North America, its most important region, and average price per ad jumped 14% in the quarter, a sign of increasing demand among advertisers for placement on Facebook and Instagram.
Why user growth is key
Investors have been skeptical of Meta's user growth several times before, believing that users are flocking to alternative social media platforms like Snapchat or TikTok. But the numbers above show that Meta is still making substantial gains each quarter, strengthening its lead over the competition.
The growth shows that Meta's network effects, a key source of its competitive advantage, continue to get bigger. That also reflects well on the reputation of its brands since users are likely to be drawn to the social media platforms that their friends and other members of their community are on or that they hear about through word of mouth. That, in turn, makes the platform even more valuable to advertisers.
NASDAQ: META
Key Data Points
Why Meta stock is a buy
The strength and success of its advertising business reveal a simple truth about Meta Platforms: The business is relatively cheap to run compared to the revenue it generates.
The social media business model relies on user-generated content to engage people and then sell highly targeted ads based on those user profiles. At a scale of more than 3 billion users, that becomes highly efficient. That's why its segment with its family of apps reported an operating margin of 60% on $47.3 billion in revenue in the fourth quarter.
The stock now trades at a price-to-earnings ratio of 29.2, which is only slightly higher than the S&P 500's 27.7 even though Meta is growing much faster than the average of S&P stock
With its steady user growth, surging ad revenue, highly profitable business, and affordable valuation, Meta is an excellent bet to move higher.
