Will Meta Platforms Reach a $1 Trillion Valuation by 2025?
In the summer of 2021, Meta Platforms (META 0.84%) achieved an impressive milestone, becoming the fifth U.S. business to break the $1 trillion market cap barrier, formerly known as Facebook. However, the subsequent economic downturn left its stock in tatters, erasing over three-quarters of its value.
Now, Meta appears to be making a comeback, with investors pondering if it can recapture its former glory and rejoin the exclusive 13-digit club before the two-year mark. Let's examine the factors influencing Meta Platforms' stock performance and the likelihood of its resurgence.
A Struggling Ad Market
The impact of economic downturns is well-documented, leading companies to cut spending and focus on survival. In a bid to trim costs, many businesses cut advertising budgets, considering it the easiest expense to adjust without long-term consequences.
As the world's second-largest digital advertiser, trailing behind Google-parent Alphabet, Meta Platforms suffered significantly from advertising budget cuts. In 2021, the company boasted a 37% revenue growth and a 36% increase in earnings per share. The current economic climate, however, has presented challenges.
The Wrath of Bad Timing
In addition to external factors, Meta Platforms has faced internal issues. The company's hiring spree, initiated during the pandemic boom, resulted in significant staff expansion - from 44,942 employees in 2019 to 87,314 by the third quarter of 2022. This growth strategy, albeit well-intended, proved costly when the downturn hit. The oversized workforce became an anchor weighing down Meta, with CEO Mark Zuckerberg admitting to a very public mistake.
Since then, Meta has been readjusting, initiating layoffs to reduce its headcount from 87,314 to 76,314. It's also implementing cost-cutting measures by eliminating low-priority projects, reducing its real estate footprint, and avoiding filling 5,000 job vacancies.
If we concede that Meta's challenges predominantly stem from the current economy, a post-downturn rebound should spark renewed growth. The recent cost-cutting moves, coupled with an improving ad market, will position Meta for future success.
Meta's Dominant Network Effect
Even during challenging times, Meta Platforms can leverage its unmatched network effect. With over 3.7 billion monthly active users and 2.96 billion daily active users, Meta remains the go-to destination when advertising dollars flow once again.
Will Meta Platforms Reach $1 Trillion by 2025?
Meta's stock has soared by 76% in 2023, yet it currently trades at just 4 times next year's sales. Add to that the growing bullish sentiment from analysts, with recent upgrades and price target increases, and you've got a compelling story.
Analyst Mark Mahaney of Evercore ascribes a bullish outlook, assigning a $305 price target and an outperform (buy) rating to Meta shares, suggesting potential gains of 44% by the end of 2024. Should its stock reach $305, Meta's market cap would approach $791 billion, leaving a mere $209 billion to achieve the $1 trillion mark.
If Meta Platforms continues its 10-year compound annual growth rate of 23%, it could potentially join the $1 trillion club by 2025.
In conclusion, Meta Platforms' ample potential, coupled with strong financial performance, favorable market sentiment, and positive strategic moves, bode well for its future. It stands as an attractive investment opportunity, with the potential for significant growth and potential re-entry into the $1 trillion club by 2025.
Investors are eager to see if Meta Platforms can utilize its financial resources effectively, potentially reinvesting funds into promising opportunities for growth. This strategic financial management could significantly impact its ability to recapture its former market position.
In light of the improving economic climate and Meta's focus on cost-cutting measures, many analysts believe that investing in Meta Platforms could yield high returns, potentially leading to a resurgence and a return to the $1 trillion market cap.
