Meta: Stock of the Week

Key Takeaways on Meta Stock

• Meta launched ‘Threads’, a competitor to Twitter
• Meta is the largest social network in the world
• Meta Stock fair value estimate: US$278

Ruth Saldanha: Late last week, Meta Platforms (META) launched Instagram Threads, its competitor to Twitter, even as Twitter had yet another messy week – with the Elon Musk owned social media company limiting the number of tweets you could see per day. The drama at Twitter seems to have pushed users to other platforms – including perhaps, Meta’s Threads.

Meta's Facebook already is the largest social network in the world, with nearly 3 billion monthly active users. The growth in users and user engagement, along with the valuable data that they generate, makes Meta’s platforms attractive to advertisers. The combination of these valuable assets and Morningstar’s expectation that advertisers will continue to shift their spending online bodes well for the firm’s top-line growth and cash flow.

Meta Stock's Fair Value Estimate 

Morningstar’s Ali Moghrabi estimates that Meta’s fair value is at US$278, and the stock is currently trading in a range we consider fairly valued. Moghrabi assumes a 23.6% operating margin for 2023, lower than the nearly 25% reported in 2022. In 2024 and beyond, he expects the return of revenue growth to allow margins to steadily expand.

Finally, Moghrabi believes that while barriers to exit for Meta’s 3 billion users may be increasing, the risk of another disruptive and innovative technology remains. However, we do not expect competition in the form of a substitute for Meta,  because most of us use more than one social network anyway. And now, we could perhaps add Threads to that list.

For Morningstar, I’m Ruth Saldanha

Here's What the Bulls Say on Meta Stock

• With more users and usage time than any other social network, Meta provides the largest audience and the most valuable data for social network online advertising.
• Meta’s ad revenue per user is growing, demonstrating the value that advertisers see in working with the firm.
• The application of AI technology to Meta’s various offerings, along with the launch of VR products, will increase user engagement, driving further growth in advertising revenue.

 Here's What the Bears Say on Meta Stock

• Meta is currently a one-trick pony and will be affected severely if online advertising no longer grows or if more advertising dollars shift to others like Google or Snapchat.
• Despite rapid user growth, many of Meta’s customers may also belong to other social networks, such as Snapchat or TikTok, so the firm will continually have to fight to capture a user’s time and engagement with its properties.
• Regulations could emerge that limit the application and collection of user and usage data, or restrict acquisitions, affecting data utilization and growth.