Meta Platforms has demonstrated a strong advertising business, even as its Reality Labs division continues to incur significant losses. Over the past two years, Meta’s shares have experienced substantial fluctuations, particularly after reaching a low in 2022. Through effective turnaround initiatives, the social media corporation has achieved consistent performance, maintaining momentum into 2023. This success led to a new all-time high in stock prices in 2024. However, current and potential investors face decisions about whether to buy or sell the stock at this juncture.
Meta’s Family of Apps, which encompasses Facebook, Messenger, Instagram, and WhatsApp, continues to deliver robust results. In the previous year, the core advertising business saw a revenue increase of 22%, with operating income rising by 39%. This performance was noteworthy, considering the company already generated $133 billion in revenue and $63 billion in operating profit in 2023, rebounding from a challenging 2022. The company boasts 3.35 billion daily active users, marking a 5% growth over the last year. This vast user base provides an attractive platform for advertisers, evidenced by an 11% increase in ad impressions and a 10% rise in ad pricing in 2024.
Meta is also incorporating artificial intelligence into its products to enhance user engagement, utilizing AI technology to tailor content feeds and improve user experiences. The anticipated introduction of Meta AI, a sophisticated personal assistant, aims to further increase user engagement, thereby strengthening the advertising business.
Despite these successes, Meta’s investment in the metaverse through Reality Labs presents challenges. In 2024, operating losses for this division rose from $16 billion to $18 billion, while revenue remained stagnant at $2 billion. Though the metaverse is forecasted to be a lucrative market, potentially reaching $508 billion by 2030 according to Statista, the timeline and scale of this opportunity remain uncertain. Consequently, Reality Labs’ ongoing losses could hinder Meta’s profitability if the metaverse market does not develop as anticipated.
Investors must also consider Meta’s stock valuation, which currently holds a price-to-earnings ratio of 28, near the high end of its five-year range. While the advertising business justifies a premium valuation, the current stock price does not offer a significant margin of safety.
In summary, Meta closed 2024 on a high note with consistent growth in its advertising division. However, the substantial investment in Reality Labs continues to strain profits. Given the current valuation, investors may find limited incentive to buy Meta stock at this time, although holding may be advisable for current shareholders. Potential investors might benefit from awaiting a more favorable entry point.
