Meta Platforms Stock: A Potential Buy in the Second Half of 2024?

1 Wall Street Analyst Thinks Meta Platforms Stock Is Going to $550. Is It a Buy? | The Motley Fool

Meta Platforms (META 0.20%) has, despite a few missteps, been a roaring success as a company over the years. It continues to be quite the juggernaut on the stock market, too. It might be hard to believe now, but the company's IPO price was set at $38 per share when it went public in 2012; it now trades for nearly $480. Even across a 12-year stretch, that's quite the return. Yet there are more gains to be had in the proximate future, at least if we can believe one analyst's recent bullish take on the company. In mid-July, Bank of America (NYSE: BAC) Securities' Justin Post reiterated his buy recommendation on Meta stock. He also maintained his $550 per-share price target, implying 15% potential upside on the current level. Post felt compelled to write a fresh note on the company because of some scuttlebutt about one of its business units, virtual reality (VR) and augmented reality (AR) division Reality Labs. According to a recent report in tech industry tracker The Information, Meta aims to reduce its spending on Reality Labs' hardware products by roughly 20%. Of this, the analyst wrote that given the "somewhat limited industry traction for VR devices (balanced by new optimism on AR glasses), Meta's unprecedented investment in a new consumer platform that is still very early, and a shifting company focus toward artificial intelligence (AI), these potential cost cuts seem very logical to us." While it's never encouraging to hear whispers of reduced spending on a hot product or service, I feel Post is right -- VR/AR is pretty lukewarm these days. I think Meta management doesn't get enough credit for being as nimble and as adaptable as it's been over the years. It's admirable the company doesn't get stuck on any one technology. That goes double these days, as AI in particular can become quite the sticky offering for Meta's immense user base. This stock is absolutely a buy, in my view.

Is Meta Platforms Stock a Buy in the Second Half of 2024? | The Motley Fool

Just two years ago, the stock was struggling -- it fell to a low not seen since 2016 -- as the company faced a series of issues, such as slower growth and growing losses in its metaverse division. Today, the stock trades close to its all-time high as the company's turnaround plan begins to bear fruit. But for latecomers who missed the rally in the last 12 months, is now still a good time to buy the stock? Investors were used to Meta reporting ever-growing revenue and profitability until the end of 2021. That quarter, operating profit fell 1% year over year. While the bulls were still optimistic about the company's prospects, Meta's performance in the next few quarters shattered their hope. Operating income fell 25%, 32%, 46%, and 49% in the next four quarters. The tech giant ended 2022 with 1% lower revenue and a disappointing 41% fall in net profit. Meta's management team, in responding to the poor performance, took a series of decisive moves to get the giant back into shape. These efforts included massive layoffs, cost optimization, and refocusing attention on critical areas such as advertising and artificial intelligence (AI). And the result was incredible. In less than a year, revenue was back in growth mode (up 16% year over year), and net income improved 69% to the high achieved in 2021. On top of that, operational metrics improved across the board. For instance, daily active users grew 8% to 3.19 billion while monthly active users improved 6% to 3.98 billion. For a company as large as Meta, its turnaround speed and outcome impressed even the bears. The only downside was that the tech giant continued to incur heavy losses -- around 26% of its operating profits from advertising -- on its metaverse division. The bears doubtful of Meta's turnaround in 2023 would have been blown away by the giant's first-quarter result in 2024. Revenue came in at $36.4 billion, an incredible 27% growth rate, while net income more than doubled from $5.7 billion to $12.4 billion. Net income grew faster than revenue as Meta optimized its cost structure. For instance, head count fell 10% year over year to just under 70,000 in the first quarter. Daily active users reached a new high of 3.24 billion, up 7% year over year. Ad impressions and average price per ad grew by 20% and 6%, respectively. In other words, the tech giant is firing on all cylinders. Meta's solid financial performance means it is now better positioned to invest in artificial intelligence and the metaverse. For example, its guided capital expenditure for 2024 is $35 billion to 40 billion, up from the previous guidance of $30 billion to 37 billion, in order to invest in AI-related infrastructure. It also guided for its metaverse division losses to increase meaningfully compared to 2023. While Meta's huge investments might again raise investors' concerns, the good news is that the company is much better financially positioned to make those investments. When Meta's stock fell to its multiple-year low in 2022, it had a price-to-earnings (P/E) ratio of 8.5 times. Then, investors were concerned whether the company was a value trap. Today, the stock trades at 28.7 times the P/E ratio, above its five-year average P/E ratio of 25.9 times. The pendulum has swung from pessimism to optimism. While early investors benefited from the share price appreciation -- thanks to higher stock valuation and higher profits -- late investors have to pay a hefty premium to own the stock. There is nothing wrong with paying a premium for a stock, especially for a company that can sustain its solid performance. However, if the company fails to deliver according to investors' expectations, its premium valuation can quickly contract to reflect the new reality. Meta's recent turnaround has been remarkable, evidenced by solid growth in the top and bottom lines. While it continues to report heavy losses in the metaverse division, growing profitability puts it in an excellent position to do so. Still, the stock is not an obvious buy since its outperformance in the last 12 months means it trades at a rich valuation. While it might not be wise for existing investors to sell the stock (it's usually wise to hold on to a winning stock unless it's terribly overvalued), it's probably too risky for new investors to buy it today.

Is Meta Platforms Stock a Buy in the Second Half of 2024?

Just two years ago, the stock was struggling -- it fell to a low not seen since 2016 -- as the company faced a series of issues, such as slower growth and growing losses in its metaverse division. Today, the stock trades close to its all-time high as the company's turnaround plan begins to bear fruit. But for latecomers who missed the rally in the last 12 months, is now still a good time to buy the stock? Investors were used to Meta reporting ever-growing revenue and profitability until the end of 2021. That quarter, operating profit fell 1% year over year. While the bulls were still optimistic about the company's prospects, Meta's performance in the next few quarters shattered their hope. Operating income fell 25%, 32%, 46%, and 49% in the next four quarters. The tech giant ended 2022 with 1% lower revenue and a disappointing 41% fall in net profit. Meta's management team, in responding to the poor performance, took a series of decisive moves to get the giant back into shape. These efforts included massive layoffs, cost optimization, and refocusing attention on critical areas such as advertising and artificial intelligence (AI). And the result was incredible. In less than a year, revenue was back in growth mode (up 16% year over year), and net income improved 69% to the high achieved in 2021. On top of that, operational metrics improved across the board. For instance, daily active users grew 8% to 3.19 billion while monthly active users improved 6% to 3.98 billion. For a company as large as Meta, its turnaround speed and outcome impressed even the bears. The only downside was that the tech giant continued to incur heavy losses -- around 26% of its operating profits from advertising -- on its metaverse division. Meta started 2024 with a bang The bears doubtful of Meta's turnaround in 2023 would have been blown away by the giant's first-quarter result in 2024. Revenue came in at $36.4 billion, an incredible 27% growth rate, while net income more than doubled from $5.7 billion to $12.4 billion. Net income grew faster than revenue as Meta optimized its cost structure. For instance, head count fell 10% year over year to just under 70,000 in the first quarter. Daily active users reached a new high of 3.24 billion, up 7% year over year. Ad impressions and average price per ad grew by 20% and 6%, respectively. In other words, the tech giant is firing on all cylinders. Meta's solid financial performance means it is now better positioned to invest in artificial intelligence and the metaverse. For example, its guided capital expenditure for 2024 is $35 billion to 40 billion, up from the previous guidance of $30 billion to 37 billion, in order to invest in AI-related infrastructure. It also guided for its metaverse division losses to increase meaningfully compared to 2023. While Meta's huge investments might again raise investors' concerns, the good news is that the company is much better financially positioned to make those investments. But the stock is not in a bargain territory When Meta's stock fell to its multiple-year low in 2022, it had a price-to-earnings (P/E) ratio of 8.5 times. Then, investors were concerned whether the company was a value trap. Today, the stock trades at 28.7 times the P/E ratio, above its five-year average P/E ratio of 25.9 times. The pendulum has swung from pessimism to optimism. While early investors benefited from the share price appreciation -- thanks to higher stock valuation and higher profits -- late investors have to pay a hefty premium to own the stock. There is nothing wrong with paying a premium for a stock, especially for a company that can sustain its solid performance. However, if the company fails to deliver according to investors' expectations, its premium valuation can quickly contract to reflect the new reality. What it means for investors Meta's recent turnaround has been remarkable, evidenced by solid growth in the top and bottom lines. While it continues to report heavy losses in the metaverse division, growing profitability puts it in an excellent position to do so. Still, the stock is not an obvious buy since its outperformance in the last 12 months means it trades at a rich valuation. While it might not be wise for existing investors to sell the stock (it's usually wise to hold on to a winning stock unless it's terribly overvalued), it's probably too risky for new investors to buy it today. Before you buy stock in Meta Platforms, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Meta Platforms wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $741,989!* Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. 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. Lawrence Nga has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.