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shares of meta platform (meta -0.40%) has delivered an impressive return of 154% over the past year, crushing the overall market, driven by strong sales and bottom line growth. Following the latest earnings report, it looks like that impressive rally is set to continue.
Meta Platforms announced its fourth quarter and full year 2023 financial results on February 1st. The company’s stock rose 20% the next day, thanks to better-than-expected numbers and guidance. The good news is that Meta stock remains reasonably priced, and investors who haven’t yet bought this tech giant should consider doing so directly now.
Metaplatform is becoming a bigger player in the digital advertising market
Meta Platforms reported fourth-quarter revenue of $40.1 billion, an increase of 25% year-over-year. In addition, the company was able to reduce costs and expenses by 8% during the quarter and triple its adjusted earnings to $5.33 per share compared to the same period last year. The numbers beat consensus estimates for earnings of $4.96 per share and revenue of $39.2 billion.
It’s worth noting that Meta’s fourth-quarter revenue grew at the fastest pace since mid-2021, outpacing the company’s 16% increase in full-year revenue. The tech giant’s full-year profit rose 73% to $14.87 per share as it focused on controlling costs and improving operating efficiency in 2023.
Meta benefited from improved digital ad spending last year. According to eMarketer, digital ad spending in 2023 increased by 10.7% to $627 billion. As a result, Meta has grown faster than the markets in which it operates. Furthermore, the company’s 2023 revenue shows that it controlled 21.5% of the digital ad space last year. This is an improvement from the 2022 share of 20.5%.
Even better, Meta’s Q1 2024 revenue forecast shows that Meta could continue to capture an even larger share of the digital advertising market. The company expects sales for the current quarter to be approximately $36 billion, at the midpoint of its guidance range. This is a 25% increase compared to $28.6 billion in the same period last year. Meanwhile, overall digital advertising spending is estimated to increase by 13.2% in 2024.
Artificial intelligence (AI) may be the main reason why meta is gaining ground in the digital advertising space. The company noted in its latest conference call with analysts that it continues to “leverage AI across our advertising systems and product suite” to improve monetization efficiency. Meta’s services, such as Advantage+, enable advertisers to leverage their AI to create automated ad campaigns and optimize those campaigns to increase return on ad spend and improve customer engagement. It has gained solid support among the public.
The company also released new generative AI capabilities for advertisers last quarter. This feature allows you to generate multiple background images to complement your product images and alternative versions of your ad text, so you can choose the one that will help you increase your reach. Meta admins say that “initial adoption of these features has been positive, with testing showing promising initial performance improvements.”
The adoption of AI in the digital marketing field is expected to grow at nearly 27% annually until 2030. Annual revenue from AI in digital marketing is expected to be $79 billion in 2030, compared to just $1.8 billion in 2022. is pulling the right strings so it can continue to capture a larger share of the digital advertising market by providing advertisers with more AI-focused tools.
Strong growth could lead to further upside
It’s no surprise that analysts expect Meta’s growth to remain strong going forward.
META revenue forecast data for this year by YCharts
As the chart above shows, Meta’s analyst revenue forecasts for 2024, 2025, and 2026 have increased significantly. Furthermore, analysts expect Meta’s revenue to increase at a compound annual growth rate (CAGR) of 32% over the next five years. Year. This is significantly higher than the 8.5% CAGR recorded by the company over the past five years.
Assuming Meta grows its annual revenue by 32% over the next five years, its 2028 earnings could rise to nearly $60 per share. Multiplying the 2028 number by his five-year average expected earnings multiple for the company yields a stock price of 22 points. $1,320. This suggests an upside of 180% from current levels.
Considering that Meta is currently trading at 25 times forward P/E, investors seem to be getting a fair bit of return on this stock.
Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Harsh Chauhan has no position in any stocks mentioned. The Motley Fool owns a position in and recommends Meta Platform. The Motley Fool has a disclosure policy.
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