This META Stock Forecast article was written by Milana Papadopoulou – Financial Analyst at I Know First.

Highlights

• Meta’s advertising business continues to drive growth, generating over 90% of the company’s revenue
• Meta is positioned to capitalize on long-term growth in AR and VR across multiple sectors
• Recent restructuring and cost-cutting efforts aim to boost efficiency and profitability

Introduction

Meta Platforms, Inc. (formerly Facebook, Inc.) is a global tech giant founded by Mark Zuckerberg in 2004, initially as a social networking site. Over the years, Meta has expanded its portfolio to include major platforms like Instagram, WhatsApp, and Messenger, positioning itself as a leader in digital advertising and social media. In 2021, the company rebranded to Meta, reflecting its pivot toward the metaverse and immersive technologies through its Reality Labs division.

Recently, Meta’s stock has experienced volatility, driven by a mix of challenges and growth opportunities. After a sharp decline in 2022 due to macroeconomic headwinds and concerns about heavy spending on the metaverse, the stock rebounded in 2023, bolstered by stronger-than-expected ad revenue, cost-cutting measures, and optimism around its AI initiatives. Meta’s evolving strategy and long-term bets on VR/AR and AI make it a closely watched stock in the tech sector.

Revenue Breakdown

Meta’s Revenue is highly concentrated in the advertising segment. General and targeted Advertising on their social media platforms brings in over 90% of the firm’s revenues. The segment has also been one showing the fastest growth out of Meta’s portfolio. 

The introduction of Facebook Marketplace allowed them to also tap into the e-commerce market. In attempts to diversify from the advertising revenues, the firm allows sellers to place product offerings on their platforms, collecting commission from sales. Being new in a market already dominated by prominent companies like Amazon means the growth of this stream has been slower. 

A sector rather “dear” to Meta has been Reality Labs. This is their VR, AR and Metaverse division that has been operating mostly at a loss so far, but the firm projects significant returns in the future. If Metaverse does truly gain more consumer interest and the vision materializes, Meta will have a tremendous advantage over other tech firms. 

Reality Labs

Mark Zuckerberg made headlines at Connect 2021, where he announced that Facebook will be renamed to Meta, solidifying the firm’s vision. The CEO envisions the metaverse as the next major computing platform and firmly believes that it will grow to be a multitrillion-dollar industry in the future. 

Reality Labs is Meta’s division concerned with VR, AR and Metaverse. The firm doubled down on its statements about the sector’s potential with a spectacular hiring spree following the statement. However, so far it has been a huge cost centre for Meta, due to R&D investments, dampening the whole firm’s operational profitability. This led to the CTO sending out notices to the whole Reality Labs division about restructuring to boost efficiency in 2024. In theory, the restructuring should improve customer experience and adopt a more holistic approach to product development in the firm, but the effects will be seen later. 

Virtual World, Real Gains

Despite initial setbacks, Reality Labs has the potential to become a significant revenue driver for Meta in the long run. Although its ambitions for a whole new economic sector arising with the metaverse adoption are far-fetched for an average investor, AR and VR developments are closer prospects. 

With lower costs and improvements in the overall digital infrastructure, VR is bound to be adopted more widely. The most obvious trajectory for growth is the gaming sector, which is its biggest market currently as well. Virtual reality increases immersion in games and has the potential to revolutionize the industry. A less obvious pathway is education, where much change is needed. Adoption in education could make lessons more engaging and gamify learning.

Augmented reality is the least far-fetched possibility as multiple firms are currently trying to make strides in the sector. With interest in the Apple Vision Pro Augmented Reality headset and the Meta glasses, the wider public got more enlightened about the potential of AR. Wider adoption could facilitate navigation, synchronous translation, medical diagnostics and, once again, education.  

Liquidity and Profitability

The volatility of the tech world means firms can “drown” in obligations quite quickly. This is why liquidity is of such importance for Meta. Although its liquidity ratios have strayed from the mean quite significantly in recent years, they still exhibit good performance for a tech firm. The shift towards the metaverse has brought certain uncertainty into the balance of their assets and liabilities, but the indicators still seem to be within bounds.

Meta’s operating expenses have been fluctuating following the pandemic. This is an expected consequence of the IT hiring boom at the time as well as surging demand for AI professionals and microchip shortage. These notions have dampened the operational profitability of Meta quite significantly. However, the figures still seem in line with the industry and the Ratios are increasing.

Efficiency and Capital Structure

Meta holds a significant asset base with property and equipment holding the biggest share of total assets. Thus, they need to use these assets efficiently for profit generation. They also have a substantial amount of current assets that have been growing in the last few years. The management seems to be efficient with the utilization of total assets for profit generation and that metric has been improving. They could, however, improve the efficiency of working capital employment. The “dip” they experienced previously could be due to less-than-anticipated interest in the metaverse, which they were pushing so insistently during COVID-19. 

Fiscal Year 2022 was when Meta exited the “club” of prominent tech firms without long-term debt. Uncertainty was rising about the future of its metaverse business and layoffs were making headlines. That is when Facebook’s parent company reported that they were offering bonds for the first time. Despite slightly raising the risk levels of the business, it is likely a positive move. In previous years Meta was rather under-leveraged even for a business as cyclical as technology. This allowed them to weather hard times but restricted possibilities for expansion. The newly acquired capital was used for share repurchases and investments. 

META Forecast: Analysts’ Views

The analysts are overwhelmingly bullish on Meta in October 2024. So far, they have outperformed EPS expectations each time in the last four quarters and by a significant margin. Their revenues have been steadily growing, although profitability has been lagging. Despite that, Analysts from Yahoo Finance place it in the Buy/Strong Buy category. 

CNN’s analysts are even more bullish, with 86% deeming it a “Buy”. They, however, have a higher spread between the potential high and low projections. However, such a notion is not unusual for firms involved in the AI boom. 

META Forecast: Conclusion

I’m bullish on Meta’s stock due to its strong ad revenue and leadership in AR and VR. Despite setbacks in the metaverse, Meta’s dominant presence across Facebook, Instagram, and WhatsApp continues to drive growth, balancing its heavy R&D investments.

The future of AR and VR offers huge potential, and Meta is well-positioned to capitalize on their growth across sectors like gaming, healthcare, and education. Financially, Meta is balancing profitability with innovation, and recent restructuring efforts show they’re committed to improving efficiency. With these strengths, Meta is poised to outperform earnings expectations and deliver strong returns.

It is worth paying attention that the stock-picking AI of I Know First has a high signal on the one-year market trend forecasts, supporting my position for the META stock forecast. The light green for the short-term forecasts is mildly bullish, while the darker green is a strong bullish signal for the one-year forecast.

Past Success with META Stock Forecast

I Know First has been bullish on the META stock forecast in the past. On July 9^th, 2024 the I Know First algorithm issued a forecast for META stock price and recommended META as one of the best S&P 100 stocks to buy. The AI-driven META stock prediction was successful on a 3-month time horizon, resulting in more than 11.56%.

To subscribe today click here.

Please note-for trading decisions use the most recent forecast.