Shares of Meta Platforms (META -1.73%) and Alphabet recently went in opposite directions after their latest earnings reports. Meta's stock stumbled after it followed up a strong earnings report with a softer-than-expected revenue forecast and expectations for higher spending. Alphabet's stock surged after its advertising and cloud businesses accelerated again, and it followed up its earnings beat with a $70 billion buyback plan and its first dividend.
Meta is now worth $1.12 trillion, while Alphabet's market cap recently hit an all-time high of $2.15 trillion. Could Meta catch up and eclipse Alphabet's market cap by the end of 2025? Let's take a fresh look at the social media leader to find out.
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Meta overcame a tough slowdown over the past two years
From 2011 to 2021, Meta's revenue grew at a compound annual growth rate (CAGR) of 41% as its earnings-per-share (EPS) rose at a CAGR of 40%. That robust growth was driven by the rapid expansion of its social media ecosystem. At the end of 2011, Meta served 845 million monthly active users (MAUs) on Facebook. By the end of 2021, it served 2.91 billion MAUs on Facebook and 3.59 billion monthly active people across its entire family of apps -- which also include Instagram, Messenger, and WhatsApp.
Meta's expansion drew in more advertisers, who found it easier to target specific customers based on their social media interests. In addition to that first-party data, it collected more data from third-party sites and apps to craft its targeted ads.
But in 2022, Meta's revenue and EPS declined 1% and 38%, respectively. Three headwinds caused its growth to abruptly stall out. First, Apple allowed its users to opt-out of third-party data tracking features in an iOS update. That change made it much harder for Meta to deliver effective ads. Second, ByteDance's TikTok pulled away many of its younger users and advertisers. Lastly, the macro headwinds forced many companies to rein in their marketing expenses.
At the same time, Meta continued to expand its unprofitable Reality Labs segment, which houses its augmented and virtual reality devices, and its cloud infrastructure. That combination of stagnant sales growth and soaring expenses caused the bulls to flee. As a result, Meta's stock sank to a seven-year low of $88.09 on Nov. 4, 2022.
Yet Meta's shares have rallied more than 400% since that fateful day. Its stock bounced back as it rolled out more AI-powered algorithms to gather first-party data and counter Apple's changes, expanded Reels to challenge TikTok in the short video market, and leveraged more ad impressions to offset its declining ad prices. It also attracted an influx of ad spending from Chinese e-commerce and gaming companies which wanted to reach more overseas customers.
In 2023, Meta's revenue and EPS increased 16% and 73%, respectively. It remained committed to expand its Reality Labs business, but its operating margins expanded as its advertising business recovered and it trimmed its workforce. It also approved a $50 billion buyback plan and initiated its first-ever dividend at the end of the year.
What will happen to Meta in 2024 and 2025?
Meta's revenue rose another 27% year over year in the first quarter of 2024, but it only expects 14%-22% revenue growth in the second quarter. The midpoint of that outlook slightly missed analysts' expectations for 20% growth, and the company hinted at slower spending from its Chinese advertisers (which accounted for 10% of its top line and five percentage points of its revenue growth in 2023) throughout the rest of the year.
At the same time, Meta slightly raised the outlook for its full-year expenses from $94-$99 billion to $96-$99 billion as it expands its cloud infrastructure and AI services, racks up even higher operating losses at its Reality Labs segment, and faces "increasing legal and regulatory headwinds" in the U.S. and Europe.
Analysts still expect Meta's revenue and earnings to grow 18% and 35%, respectively, in 2024, but they might rein in those estimates if its growth cools off in the second half of the year. For 2025, they expect Meta's revenue and earnings to rise 13% and 15%, respectively, and its stock looks reasonably valued at 23 times forward earnings.
Will Meta be worth more than Alphabet by 2025?
Looking further ahead, analysts expect Meta's revenue and earnings to grow 12% and 15%, respectively, in 2026. If Meta remains on track to hit those targets and still trades at 23 times forward earnings, its stock could reach $610 by the end of 2025. That would boost Meta's market cap to $1.55 trillion -- but it would still be smaller than today's Alphabet, which will likely grow even larger over the next two years as the macro environment warms up.
So instead of wondering if Meta will ever catch up to Alphabet, investors should focus on the long-term growth potential of its business -- which still has plenty of ways to monetize the 3.24 billion people who use at least one of its apps on a daily basis.
