Meta Platforms (META -0.70%) is without doubt a leader in the technology and internet industries. It has been a monster success story and a business that has done a great job rewarding its longtime shareholders, something that holds true in more recent times.
As of this writing, this social media stock has soared almost 400% in the past two years. This means that a $10,000 investment made 24 months ago would be worth nearly $50,000 today. That gain is hard to beat.
But should you buy Meta shares right now?
Getting back on solid ground
Meta stock took a hit in 2022 as did the rest of the market. That year, the company posted a surprise 1% year-over-year revenue drop, which occurred after years of tremendous double-digit sales gains. As the Federal Reserve started to aggressively hike interest rates to combat soaring inflation, advertisers pulled back their spending, negatively impacting Meta.
That same year, the company’s operating margin came in at 25%. This was down from 40% in 2021. Meta’s costs had soared 23% as it focused on restructuring efforts. Shareholders clearly weren’t pleased at the time, as shares fell 64% in 2022.
But nowadays, the business is on a much better footing. Revenue jumped 16% before rising 22% through the first nine months of this year. Additionally, profitability has improved, with Meta reporting a stellar 43% operating margin in the third quarter of 2024.
The management team feels so optimistic about the position the business is in that they finally authorized dividend payments in May of this year. Meta had its first-ever quarterly payout of $0.50 per share in June. Given that the company generated $15.5 billion in free cash flow in the latest three-month period, there is plenty of capital for dividends as well as sizable share buybacks.
Meta’s AI push
There hasn’t been a hotter topic in the corporate and investing worlds than that of artificial intelligence (AI). In the past couple of years, we’ve seen executives shift their strategies — sometimes radically — to focus more on AI initiatives. What’s more, investors have gravitated to stocks that have exposure to this technological trend.
As a massive company with a $1.4 trillion market cap and nearly 3.3 billion daily active users among its various social media platforms, it makes sense that Meta is already a top player in the AI boom. The business’s Meta AI assistant already has 500 million monthly active users. And with AI-powered recommendations, users are spending more time on Facebook and Instagram.
This makes things more attractive to advertisers looking to target a captive audience. “More than a million advertisers used our GenAI tools to create more than 15 million ads in the last month,” said CEO Mark Zuckerberg on the Q3 2024 earnings call.
Meta plans to invest $38 billion to $40 billion on capital expenditures this year to bolster its network infrastructure. And that figure is set to grow meaningfully in 2025.
Look at the stock’s valuation
Exactly two years ago, shares of Meta traded at a price-to-earnings (P/E) ratio of 10.6. With the benefit of hindsight, that valuation made buying the stock look like an absolute no-brainer opportunity. Of course, that happened to be true given just how much the share price has climbed since then.
Investors looking to buy this dominant enterprise right now should be comfortable paying a steeper valuation. The stock trades at a P/E multiple of 26.2. The S&P 500 trades for a P/E ratio of 25.7, so Meta is in the same ballpark as the average stock.
However, anyone could easily argue that this is a superior business that deserves at least that type of valuation. To be clear, shares aren’t as cheap as they were a couple of years ago. But for investors who want to add a dominant internet company to their portfolios, perhaps it’s smart to pay up to own Meta.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
