You would be a happy shareholder if you had invested in Meta Platforms (META 3.00%) during its 2012 initial public offering (IPO), under its original name, Facebook. The company has delivered a compound annual growth rate of about 23%, much better than the performance of the S&P 500.
But the bears will point out that Meta Platforms’ market capitalization is now well above $1 trillion, which limits its upside potential — or so the argument goes.
Furthermore, the social media and online advertising markets have become substantially more competitive than they used to be, so it will be difficult for Meta to continue producing market-beating returns. Is it too late to invest in it, or does the tech leader still have enough growth fuel left?
META total return level, data by YCharts.
Meta’s strong moat
Although the social media industry is competitive, Meta has some of the oldest and most recognizable players in the game. The company’s portfolio of famous websites and apps includes Facebook, Messenger, WhatsApp, and Instagram.
At the end of the first quarter, Meta had 3.24 billion daily active users, an increase of 7% year over year. That’s an impressive number; any company would spend a fortune to have an ecosystem of customers that deep.
And there are excellent reasons to think the company can keep most of them. It benefits from a competitive advantage, especially its network effect — that is, the value of its platform increases with use.
Think of Instagram, which serves a variety of needs, like people trying to keep up with family and friends, and companies trying to attract customers with pages heavily focused on marketing. The more users there are on the website, the better suited it is for these purposes and many others.
Advertisers targeting potential customers also see great value in the website as it grows in prominence, as do influencers, celebrities, and the like. Facebook and WhatsApp benefit from a similar dynamic.
For Meta, it means it will be incredibly difficult to knock off its pedestal as the leading social media corporation, especially since its websites and apps can coexist with the competition.
The company went through a period during which it lost some customers about a couple of years ago due to pandemic-related dynamics. But it’s unlikely that Meta will lose much of its ecosystem in the foreseeable future.
Multiple growth avenues
The company has a vast customer base, but that will not be much use unless it can monetize this audience. To do so, the company has multiple growth paths. Meta still makes almost all of its money from advertising, and despite a slowdown in the online ad market in 2022, it bounced back. In the first quarter, revenue stood at $36.5 billion, 27% higher than the year-ago period.
Digital advertising is targeted, cost-effective, and allows businesses to measure the results of their campaigns with some accuracy, all of which should continue providing an important tailwind for the industry. That’s good for Meta Platforms, but the company does have other opportunities, most notably artificial intelligence (AI). Its work includes Llama, a large language model that now powers the company’s AI assistant, Meta AI.
Management has also implemented various AI initiatives across its business to boost productivity and efficiency, including algorithms that aim to keep viewers glued to Reels (short-form videos) on Instagram and Facebook. The company’s other opportunities include paid messaging on WhatsApp, e-commerce, and the metaverse. Don’t bet against it coming up with even more ways to squeeze money out of its vast customer base.
Don’t forget the dividend
At the beginning of the year, Meta Platforms announced that it would start paying dividends. It’s far too early to call the company a great dividend stock; only time will tell. But it’s an excellent growth stock with plenty of upside left despite its market cap being above $1 trillion — a dividend on top of that doesn’t hurt.
So, is it too late to buy Meta Platforms stock? Not at all.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Prosper Junior Bakiny has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.