Meta Platforms (NASDAQ:META) remains one of the world’s largest and most influential technology companies. META stock operates some of the most popular social media platforms including Facebook, Instagram, WhatsApp, and Messenger. It also develops and sells hardware products, such as Quest mixed reality headsets, Portal smart displays, and Ray-Ban smart glasses. In addition, it is investing heavily in building out the metaverse, the virtual environment where people can interact with each other and digital content.
The tech giant offers investors a long history of strong revenue and earnings growth, driven by its large and engaged user base, its diversified and innovative product portfolio, and what has become a dominant position in online advertising.
Yet some of its largest initiatives have been its biggest flops. Developing the metaverse has been a huge sinkhole for cash. Its Reality Labs division burned through over $31 billion over the past two years while generating just $4 billion in revenue. And it’s not going to get any better. Reality Labs produced only $210 million in revenue in Q3 and Meta warned, “we expect operating losses to increase meaningfully year-over-year” in 2024.
Since the basis for Meta Platform’s future is centered around the metaverse and many of its products are designed to specifically work there, why must an investor own META stock now?
A solid base to grow on
I think META stock made a mistake in going all-in on the metaverse. Yet the rest of its business is fortunately strong enough to still carry the company. In fact, it is growing despite the big losses the tech stock is expecting from that unit.
Through the first nine months of 2023, Meta generated $94.8 billion in revenue, up 12% year over year. It also notched $25 billion in net income, a 35% increase from last year. It also had 3.96 billion monthly active people across its family of apps, 7% more than a year ago.
I don’t expect Meta to shut down Reality Labs, but CEO Mark Zuckerberg indicates he understands he’s swimming against the tide. Employees in the unit responsible for the product development were told last November many were going to be fired this Spring. That’s on top of the 21,000 that were fired over the past year. Meta is reining in expenses and slimming down to focus on what works.
Looking ahead to 2024, Meta Platforms has several growth drivers that should propel its business to even greater heights and offset the losses.
A digital leader
It wasn’t so long ago Meta was in a downward spiral. Changes to Apple‘s (NASDAQ:AAPL) privacy policies wounded its advertising business just as TikTok started stealing eyeballs. It was a gloomy picture that caused META stock to plummet 73% in 2022 to just under $84 a share. But it’s a completely different picture today.
Ad revenue made a U-turn and is up 13% year to date. Although advertisers remain leery of digital spending, they can see the value derived from Meta’s social media sites. It’s just as much as they get from Alphabet‘s (NASDAQ:GOOG, NASDAQ:GOOGL) Google or Amazon (NASDAQ:AMZN).
Meta’s short-form video platform Reels is now a force driving engagement. It is responsible for a better than 40% increase in time spent on Instagram since its launch. It is also net neutral to Meta’s ad revenue and will likely be a big contributor to its monetization efforts. Reels should also help Meta Platforms attract and retain younger users.
Artificial Intelligence (AI) is the underlying technology powering many of Meta Platforms’ products and services, such as content ranking, recommendation, moderation, personalization, and translation. It also enables new and exciting experiences, such as augmented reality (AR) and virtual reality (VR), which are core components of the metaverse. Meta Platforms has been investing heavily in AI research and development, building state-of-the-art AI systems and models. Meta plans to leverage its AI capabilities to create more value for its users and advertisers. It also plans to use it to advance its vision of the metaverse.
Why buy now
If you didn’t buy META stock last year you missed out on an amazing tripling in value. Shares are not as cheap as they once were. But they’re not so expensive either as the stock trades at 21 times earnings estimates. Wall Street forecasts 32% annual earnings growth for the next five years.
Meta Platforms is a technology powerhouse that has multiple growth levers it can pull this year. With a clear and ambitious strategy to build on its successes and minimize its losses, Meta is well-positioned to capitalize on the opportunities and challenges that lie ahead. I foresee Meta continuing to deliver a strong financial performance and an increase in shareholder value in the coming year.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.