In the summer of 2021, Meta Platforms, formerly known as Facebook, achieved the status of a trillion-dollar company. However, it faced challenges in the subsequent two years, grappling with Apple’s privacy changes, competition from TikTok, and broader economic headwinds. As a result, it dropped out of the trillion-dollar club.
As the technological landscape evolves, Meta Platforms, previously known as Facebook, finds itself at the forefront of speculation and scrutiny. The company, which achieved trillion-dollar status in 2021, experienced a rollercoaster ride over the subsequent years. Now, with renewed momentum and a market cap of $1.2 trillion, the question looms large: Will Meta Platforms become a $2 trillion stock by 2025?
In the summer of 2021, Meta Platforms attained the coveted trillion-dollar valuation. However, challenges arose in the form of Apple’s privacy changes on iOS, stiff competition from TikTok, and broader macroeconomic headwinds. These factors contributed to Meta’s exit from the trillion-dollar club.
Resurgence and Recovery
A resurgence occurred in 2023, and by January 2024, Meta once again reached a trillion-dollar valuation. Following a 20% surge in stock price after its earnings report on February 2, the company’s market cap rose to $1.2 trillion. The question now arises: can Meta sustain this momentum and become a $2 trillion company by 2025?
The company faced setbacks in 2022, with a 1% decline in revenue, primarily attributed to challenges affecting its advertising business. Despite cooling sales, Meta continued to invest in its unprofitable Reality Labs segment, focusing on augmented reality and virtual reality products. Operating margin dropped from 40% in 2021 to 25% in 2022, and earnings per share plummeted by 38%.
Financial Strategies
Investor confidence waned, leading to Meta’s stock hitting a seven-year low of $88.91 on November 3, 2022, with a market cap of $236 billion. However, 2023 saw a remarkable turnaround, with revenue and earnings per share rising by 16% and 73%, respectively. Advertising business recovery, fueled by increased spending from Chinese companies and algorithm improvements, played a significant role.
Despite a 9% decline in average ad prices in 2023, Meta countered with a 28% increase in total ad impressions. The expansion of its Family of Apps contributed to a 6% growth in monthly active users to 3.98 billion globally for the year. The Reality Labs business continued to expand, but cost-cutting measures and layoffs allowed Meta to double its free cash flow to $43 billion, enabling share buybacks and the initiation of a quarterly dividend.
Analyst Projections
Analysts project a compound annual growth rate (CAGR) of 13% for Meta’s revenue and a 22% CAGR for earnings per share from 2023 to 2026. At a forward earnings multiple of 24, the stock appears reasonably valued, trading at around $650 a share with a market cap of $1.65 trillion by 2025. If investors become more optimistic, pushing the forward earnings multiple to 30, Meta’s valuation could exceed $2 trillion by the end of 2025.
Cautious Optimism
While the path to a $2 trillion valuation seems plausible, it’s essential to approach long-term estimates with a degree of skepticism. Unforeseen macroeconomic shifts, competitive dynamics, and regulatory challenges could pose hurdles. However, Meta Platforms appears to be strategically positioned to explore opportunities in the metaverse and further solidify its standing in the tech industry as it aims for this ambitious valuation goal.
While long-term estimates should be approached with caution due to potential macroeconomic, competitive, and regulatory challenges, Meta seems to have a viable path toward the $2 trillion mark by 2025, particularly as it stabilizes its advertising business and explores opportunities in the metaverse.
