In 2023, Meta Platforms, formerly known as Facebook, has made an extraordinary comeback in the stock market. After a lackluster performance in the previous year, Meta’s shares have surged by approximately 162%, contrasting sharply with the 64% decline in 2022. These impressive gains are over 13 times the returns of the S&P 500, showcasing the magnitude of Meta’s resurgence.
The driving force behind Meta’s success in 2023 lies in its return to revenue growth after several quarters of decline. Being heavily reliant on digital advertising across its social media platforms, Meta Platforms felt the impact of the economic challenges that dominated the headlines in the previous year. Marketers, facing economic uncertainty, often cut back on advertising spending, adversely affecting companies like Meta.
This decline in ad spending led Meta to report three consecutive quarters of year-over-year revenue declines, a first in its history. Understandably, investors grew concerned, and risk-averse individuals chose to exit the stock. However, their cautious approach proved costly as Meta Platforms defied expectations and emerged stronger this year.
The rebound in digital advertising has fueled significant gains for investors in Meta. In the second quarter of 2023, Meta reported an 11% year-over-year growth in revenue and a 21% increase in earnings per share, positioning the company for potential record-high sales and profits.
What sets Meta apart from its competitors is its commitment to embracing cutting-edge technology, particularly Generative AI. While AI has been a core component of the company for various purposes, Meta now plans to apply these advanced algorithms to enhance its digital advertising efforts. Meta is one of the few companies with the necessary resources to develop large language models for generative AI.
In a recent move, Meta introduced a suite of AI-powered marketing tools for businesses advertising on its platforms. These tools allow for customized images and text, empowering businesses to effectively target their desired audiences. AI plays a crucial role in creating backgrounds, adjusting aspect ratios, and generating multiple ad versions tailored to various advertising channels.
While many companies view the widespread adoption of AI as a future endeavor, Meta is already leveraging this technology to drive its growth. However, it’s important to note that Meta’s stock is currently trading at a somewhat inflated valuation. It is trading at 37 times its trailing 12-month earnings and roughly 7 times its sales, making it less appealing for some investors.
Nonetheless, when considering Meta’s future prospects, the outlook becomes more favorable. It is valued at only 24 times next year’s earnings and 5 times next year’s sales, which is significantly more attractive. The company is expected to return to double-digit growth in sales and earnings per share by the end of 2024.
The recovery in the digital advertising market is well underway, and Meta is generously offering its AI expertise to advertisers at no cost, potentially attracting a growing number of them to its platform. Despite potential market volatility due to ongoing economic uncertainties, investing in Meta Platforms now could prove to be a savvy move in five or ten years, especially given the extensive growth prospects on the horizon.
In conclusion, Meta Platforms has made an impressive comeback in 2023, with its shares surging and outperforming the market. The company’s return to revenue growth, coupled with its innovative use of AI in digital advertising, sets it apart from its competitors. While caution should be exercised due to the somewhat inflated valuation, Meta’s future prospects indicate significant growth potential. With the recovery of the digital advertising market and Meta’s generous offering of AI expertise, investing in Meta Platforms now could yield substantial returns in the long run.
Use the share button below if you liked it.