Meta Platforms (META 3.77%) isn't a cheap stock anymore, at least on a dollars-per-share basis. Its stock price has reached over $700 per share, a range that many investors begin wondering if a stock split is imminent. Meta has never split its stock before, so this is a bit of uncharted territory for the company.
Is Meta due for a stock split soon? After all, it's near a range where many of its big tech peers have enacted stock splits.
There is no historical precedent for a Meta Platforms stock split
With the success of big tech stocks over the past decade, many of them have undergone stock splits. Apple underwent one in 2020 when it split its stock 4-for-1. At that time, Apple was trading over $500 per share, which was not far from where Meta is now. Nvidia has undergone two stock splits in its meteoric rise: one in 2021 and another in 2024. The 2024 one occurred when the stock was trading around $1,200 per share, while the 2021 split occurred when the stock was trading just shy of $800.
So, there's historical precedent for a company like Meta to split its stock around these price points, but why does it matter?
Investors get excited for stock splits because they perceive the stock to suddenly be cheaper. This is rooted in psychological thinking, even though not much has changed with the stock.
Most stock splits are purely cosmetic, although they do have some benefits. They are:
- Stock splits allow companies to give stock grants to employees more easily.
- Stock splits allow investors without access to fractional shares to purchase the stock more easily.
- Stock splits open up more option strategies to investors.
I'd argue that only the first point truly matters to the company, so it's clear that stock splits are mostly cosmetic. However, I think that finding companies splitting their stock is a smart idea, as companies only split their stock for one reason: The stock price has risen a lot.
Finding companies with rising stock prices is smart, as it indicates that the business is doing well. While some may shy away from buying a stock that has risen so much, I believe it indicates a high-quality company -- something Meta clearly is.
Meta Platforms has become even more dominant over the past few years
Meta Platforms is the parent company of social media sites Facebook, Threads, Instagram, and WhatsApp. These dominant platforms generate a ton of advertising revenue, which has turned Meta into an absolute financial powerhouse. In Q4 alone, Meta's Family of Apps generated $47.3 billion in revenue and converted $28.3 billion of that into operating income. That's a 61% operating margin, which is nearly unheard of from any company in any industry.
NASDAQ: META
Key Data Points
While Meta has started to pay dividends and repurchase shares, it's using much of that cash flow to expand its artificial intelligence (AI) offering. In 2025, Meta expects to spend between $60 billion and $65 billion on capital expenditures, mostly centered around its AI investments. That's a lot of money, but it's clear that there's a huge market opportunity there.
Meta CEO Mark Zuckerberg believes that 2025 will be the year when an AI agent can create a good mid-level engineer. This would be a massive breakthrough and would multiply the company's engineering power, boosting its resources.
Right now, AI isn't a profit center for Meta; it's a cost. However, there are a few avenues where it could help Meta generate revenue, but those days are still a bit in the future. As a result, we should value the company on its current business.
Meta Platforms trades for 30 times trailing earnings and 28 times forward earnings, indicating that Wall Street isn't as bullish on its 2025 prospects.
META PE Ratio (Forward) data by YCharts
This can be traced back to Meta's massive expenditure plan for 2025, but I still think it is a reasonable price to pay for a company with Meta's dominance in both the social media field and the generative AI sector.
While I'm not sure if Meta Platforms will undergo a stock split anytime soon, I don't think it matters, as the stock looks like a great buy now and doesn't need the catalyst of a stock split to send it higher.
