Meta Platforms stock’s (NASDAQ:META) next stop seems pretty clear to me: $600/share. This may sound a bit too optimistic, given that shares have already rallied by nearly 160% over the past year. However, as a Meta shareholder who has owned the stock for more than five years through its wild ups and downs, I have never been more confident holding the social media behemoth. The company ended Fiscal 2023 on a high note, entering Fiscal 2024 with very strong momentum. Accordingly, I remain bullish on the stock.
All KPI’s Hit New Records, Growth Accelerates
All of Meta Platforms’ KPIs (key performance indicators) hit new records in its Q4 and full-year results, while its revenue and earnings growth even accelerated. Notably, Meta witnessed continuous expansion in its user base and achieved notable progress in monetization, resulting in an impressive surge in overall top-line growth. Coupled with diligent cost control measures implemented during its “Year of Efficiency,” Meta achieved substantial margin expansion, propelling its profits to new heights.
Let’s take a deeper look.
User Base Keeps on Advancing Against All Odds
The most impressive part of Meta’s latest report was the continuous growth in its overall user base. But before we get into the numbers, let me take a moment to revisit an intriguing aspect of Meta’s user base history. Recall those periods in the company’s past when media outlets were buzzing with concerns about a decline in users?
There is an article from The Daily Mail published in 2015, which claimed that nearly one-third of people aged 16 to 34 (presumably Britons, in this case) had deleted their Facebook accounts because they no longer saw it as ‘cool.’ Similar articles were published during the Cambridge Analytica era around 2018. Yet, the company continued to expand its user base—a trend that persists to this day.
Clearly, Meta has been doing something right in the interim, and users don’t “hate” its platforms to the extent that the media has historically portrayed.
In any case, in its Q4 results, Meta achieved a noteworthy milestone by reaching a new record in its user base. At the end of the period, its suite of apps boasted 3.19 billion daily active people (DAPs), up 8% from the previous year. Additionally, the family monthly active people (MAPs) metric saw a notable uptick of 6%, reaching a jaw-dropping 3.98 billion.
These figures defy the narrative of user decline that was prevalent in the past and highlight Meta’s ability to keep attracting new users despite having arguably reached peak maturity as a company. It’s also worth considering that this user growth is taking place in an incredibly competitive landscape, with anyone from TikTok to YouTube vying for users’ attention spans.
Monetization Improvements Drive Growth Reacceleration
Meta’s continuous user base expansion in Q4 and improvements achieved in monetization drove a reacceleration in its growth. There were many factors contributing to this result, but the main driver here was the growing average revenue per user, which was, in turn, propelled by robust user engagement.
Take Reels, for instance. During the Q4 earnings call, management stated that Reels continued to do very well across both Instagram and Facebook, which is evident by people resharing Reels 3.5 billion times every day. Despite entering the scene “late to the party,” Reels now confidently holds its ground against competitors like TikTok and YouTube Shorts.
Management highlighted the significant role of AI-recommended Reels in this success. Basically, multiple teams are actively experimenting with various versions of Reels across Meta’s apps, employing a trial-and-error strategy. They see what works and drives the most engagement in small pools of users and then roll out the most effective versions to everyone. By leveraging its massive user base, Meta can deliver the best possible product over time, and, thus, drive higher engagement and revenue per user (ARPU).
Indeed, Meta’s average revenue per user grew by 20.8% to a record high of $13.12. Combined with a larger user base and higher revenues from Reality Labs, total revenues for the quarter grew by 25% to $40.1 billion – also a record. This implies a significant reacceleration in revenue growth from the prior four quarters, whose year-over-year revenue growth rates were 23%, 11%, 3%, and -4%.
Now, blend this upward trend with Meta’s impressive cost efficiencies attained during Fiscal 2023 through its “Year of Efficiency” initiative. Then, factor in the substantial contribution from share repurchases throughout the period, and the result becomes extraordinary — a jaw-dropping surge in EPS, skyrocketing by 203% to $5.33 for the quarter and by 73% to $14.87 for the entire year.
Why Meta Platforms Stock Is Likely Heading to $600
In my view, Meta’s ongoing momentum, combined with its valuation still hovering at attractive levels, suggests that the stock is heading to $600 sooner rather than later. Wall Street sees that Meta’s surging profits trend will be well-sustained in Fiscal 2024, with consensus estimates projecting a 34.4% increase in EPS for the year to $19.98.
This implies a forward P/E of around 25, which I personally find to be an attractive multiple when considering Meta’s ongoing growth. Even if we incorporate a gradual deceleration in EPS growth and META stock keeps hovering at a forward P/E of 20-25 throughout the year, the $600 threshold should be easily achievable before this year ends.
Is META Stock a Buy, According to Analysts?
Looking at Wall Street’s sentiment on the stock, Meta Platforms maintains a Strong Buy consensus rating based on 40 Buys, two holds, and one Sell assigned in the past three months. At $528.80, the average META stock price target implies 6.4% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell META stock, the most profitable analyst covering the stock (on a one-year timeframe) is Brad Erickson from RBC Capital, with an average return of 73.42% per rating and a 77% success rate. Click on the image below to learn more.
The Takeaway
Overall, Meta Platforms’ outstanding performance in Q4 and Fiscal 2023, marked by record-breaking user metrics, enhanced monetization, and impressive revenue and earnings growth, positions the company for continued success.
Moving forward, I think that the never-ending expansion of Meta’s user base, especially in a competitive landscape, will continue to highlight the strength of its platforms. Simultaneously, its strong momentum in ARPU growth and rigid cost control suggest that Fiscal 2024 will be another year of surging EPS, which is set to reach new records.
Considering these factors and rather favorable valuation levels, a target of $600/share seems well-founded, in my view.
