Meta Stock Up 73.42% In 2023 And Could Exceed $300 (2024)

Meta Platforms (NASDAQ:META) went public on May 18^th, 2012, at $38 per share. Over the next decade, shares of META reached $378.69 on September 6^th, 2021, appreciating by $340.69 (896.55%), only to face its most intense decline. META isn't a stranger to criticism, being investigated by governments, lawsuits, or changing public opinion. META had always rebounded from criticisms of misinformation surrounding the 2016 Presidential election, news of Cambridge Analytica harvesting data, testifying in front of Congress, fines from the FTC, failed business ventures, or Antitrust hearings, and shares grinded higher. Prior to reaching its all-time highs, shares of META declined by -40.48% from July 16^th, 2018, to December 17^th, 2018, and by -29.42% from January 13^th, 2020, to March 23^rd, 2020. Directly after reaching $378.69 on September 6^th, 2021, there was no period of consolidation as shares declined by -76.74% (-$290.60) by November 2022. Growth slowing, an earnings miss, investors not buying into Zuckerberg's vision with the Metaverse, TikTok, privacy changes with Apple's (AAPL) app store, and increased expenses are just some of the reasons META resembled an unprofitable tech company during the bear market of 2022.

Since reaching its 52-week low, shares of META have appreciated by 145.32%, and in 2023 shares have increased by 73.24%. I am not just getting on the bandwagon as I have been very bullish throughout every stage of META's history and even wrote an article on October 18^th saying that "META looks like the best opportunity in big tech going into the holidays." I don't have a crystal ball, but I believe shares of META are going to keep increasing throughout 2023, and the growth story isn't over. I won't be surprised if shares of META climb past $300 in 2023, as more than 1/3^rd of the global population utilizes its platforms, and Mr. Zuckerberg is taking efficiency seriously to restore its previous levels of profitability. At the current market cap of $560.27 billion, META looks undervalued compared to the largest companies in the S&P and its peer group, in addition to over 30 analysts projecting EPS increases for 2023 and 2024. I don't believe the rally is over, and if the market ends up turning bullish on a Fed pivot in 2023, shares of META could benefit even more than I believe they already will.

Meta Platforms continue to gain users, which increases the relevancy of its business model

The key to META's business model is engagement. If individuals don't use its platforms or spend a significant amount of time engaged with its products, then the relevancy for advertisers will diminish, and revenues will decline. META builds products that help people and businesses engage with one another and generates the lion's share of its revenue from advertising. It's a simple equation: the more eyeballs and time spent on the platforms, the more beneficial it is to allocate advertising dollars toward META's products. In 2022, 97.45% of META's revenue came from advertising dollars, and 46.27% of the advertising spend came from the United States & Canada, as this segment generated $52.58 billion in revenue throughout 2022.

In 2022, META reached more than 3.7 billion people monthly across its family of apps. The current global population is 8.03 billion people, which means that on a monthly basis, 46.1% of the global population utilizes META's products. Meta's Family Daily Active People (DAP) increased by 1.02% QoQ to 2.96 billion people, while Family Monthly Active People (MAP) increased by 0.81% to 3.74 billion people. From an active user perspective, Daily Active Users (DAU) increased by 0.81% to 2 billion people, while Monthly Active Users (MAU) increased to 2.96 billion, up 0.17% MoM.

Over the previous 2 years, META has gained 155 million DAUs and 166 million MAUs. In Q4 2022, ad impressions delivered across META's apps increased 23% YoY. In 2022 META saw its Ad impressions increase by 18% YoY. META's products are arguably the best place for advertisers to allocate capital, as ads enable marketers to reach people across a range of marketing objectives, such as generating leads or driving awareness.

META's business model is solid and not going away. META builds technology platforms that help people connect, share, find communities, and grow businesses. Throughout these platforms, people have the ability to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables, while businesses can become discoverable and place their products and services in front of their target audience. Anyone who allocates resources toward advertising wants the highest penetration rate and the most exposure possible. The main reason why META drives over $100 billion in advertising revenue annually is because they provide an outlet where billions of eyeballs can be reached.

While Meta Platforms is up 73.42% in 2023, the valuation is still inexpensive compared to the largest companies in the S&P 500

Finding value in companies has a different meaning from investor to investor, but the premise of investing remains the same. Every investor wants to allocate capital toward a company at a lower price than what they sell the position for in the future. How individual investors make their investment decisions varies, and what constitutes value is subjective. With each investment an individual makes, they pay the current price for the company's future profits during their time as a shareholder. There isn't a definitive answer as to what is the best way to value a company, and throughout the investment community, a larger emphasis is placed on different metrics to fit a narrative. Nevertheless, $1 of revenue, $1 of net income, and $1 of FCF will always be equal to $1 regardless if it is generated by a tech company or an automotive company. I have built my own valuation matrix to determine a baseline value for evaluating companies.

My preference is to base my valuation model on FCF as the profitability measure because, unlike net income, it can't be manipulated through write-offs, write-downs, and other GAAP accounting practices. FCF is simply deducting capital expenditures from the cash generated from operating activities. How much cash a company generates from its operations is much harder to manipulate than net income because $1 of cash from ops should always equal $1 of cash from ops. To determine what I believe the fair market value is, I start with the total equity of a company. Total equity is simply total assets minus total liabilities. This is my baseline because if a company was to dissolve itself, theoretically, the total equity is what would be left for the shareholders to chop up among themselves after all liabilities are zeroed out. After the baseline for total equity is established, I look toward profitability. I can't predict what companies will do in the future, so I take the average price to FCF multiple that the largest companies in the market trade at, then assign that multiple to each company's FCF and add that figure to its total equity. This gives me a baseline valuation because I am taking the equity of the company and an average multiple on profits to determine its value. Then I look at the company's market cap and see if it's currently trading at a discount or premium to what Mr. Market has determined.

The companies I will compare META to include Apple, Microsoft (MSFT), Alphabet (GOOGL), Berkshire Hathaway (BRK.B), Tesla (TSLA), NVIDIA (NVDA), Visa (V), Exxon Mobil (XOM), UnitedHealth (UNH), JPMorgan Chase (JPM), Johnson & Johnson (JNJ), Walmart (WMT), Mastercard (MA), Procter & Gamble (PG), Chevron Corporation (CVX), Home Depot (HD), Eli Lilly (LLY), AbbVie (ABBV), Merck & Co (MRK), Broadcom (AVGO), Coca-Cola Company (KO), Oracle (ORCL), PepsiCo (PEP), Thermo Fisher (TMO), McDonald's (MCD), Salesforce (CRM), Danaher (DHR), Abbott Labs (ABT), Linde (LIN), and Wells Fargo (WFC). There are 32 of the largest companies in the S&P 500, excluding Amazon (AMZN), Disney (DIS), and Bank of America (BAC). I excluded AMZN and BAC because they had negative FCF in the TTM and DIS because their P/FCF was $106 million, placing their P/FCF at 1,616.21x. Without these 3 anomalies, the data is much tighter. Below is how the 32 largest companies in the market rank, excluding AMZN, BAC, and DIS.

META has a current market cap of $560.27 billion. At the end of 2022, META had $125.71 billion of total equity on its balance sheet, and generated $19.04 billion in FCF during the 2022 fiscal year. This places META at a 29.42x price to FCF multiple, which is slightly under the average price to FCF of 32.73x that the 32 largest companies trade at. Based on my methodology of establishing a fair market value, META should have a market cap of $749.02 billion when comparing it to these 32 companies, which would place its current market cap at a -25.20% discount to fair value.

If I take the same methodology and extract all of the non-tech companies, the valuation changes substantially. When comparing META to AAPL, MSFT, GOOGL, NVDA, AVGO, ORCL, and CRM, its fair market value increases to $1 trillion as tech companies trade at higher valuations. This places META's current market cap at a -44.12% discount.

Some readers may feel that comparing META to non-tech companies is the equivalent of comparing apples to oranges. I would disagree with this line of thinking because every company is in the business of turning a profit and creating value for its shareholders regardless if they are selling widgets or advertising. $1 of profits is equal to $1 of profits regardless of how it is made. On the low end, I believe that META is undervalued by at least -25%, and a case can be made that they are undervalued by at least -44%. Either way, comparing META to the largest tech companies or comparing them to the largest companies in the S&P, the sell-off in META was too drastic, and shares look undervalued.

Meta Platforms has several catalysts that could strengthen its future earnings

I believe the future looks bright for META as they have multiple levers they can pull. In 2022 META generated $8.63 in EPS. There are 35 analysts that are projecting META will produce $9.29 of EPS in 2023, and 32 analysts have provided 11.35 in EPS as guidance for 2024. This places META's current P/E at 25.04 and its forward P/E at 23.26 using the 2023 guidance and 19.03 using the 2024 forward guidance. On the Q4 conference call, Mr. Zuckerberg was clear that 2023 would be the year of efficiencies. META closed out 2022 with a large round of layoffs and restructured some teams to optimize their operations. On March 6^th, 2023, a report was released that META is set to cut thousands of additional jobs as part of a newly planned round of layoffs. If inflation continues to decline, and the macro environment improves in the back half of 2023, META could see their cost of revenue, and operations decline in addition to the savings on overhead. This could provide a boost to their EPS numbers for 2023 and make their P/E multiple look more attractive than it already is. With this line of thinking, if the macro improves and companies start spending more, META could see their operational earnings increase as more revenue will be generated.

The next lever is buybacks. On the Q4 earnings call, META announced they were increasing their buyback authorization by $40 billion. In Q4 of 2022, META repurchased $6.91 billion of their common shares, bringing their repurchases to $27.93 billion in 2022. Shareholders should love this news because not only does it increase the ownership each share represents, it increases the percentage of earnings and revenue per share each share represents. META can increase its EPS without adding a single $1 of revenue through buybacks as they artificially increase EPS. Today, shares are trading at $216.10, and META generated $8.63 of EPS in 2022. META has 2.61 billion shares outstanding. For argument's sake, I will speculate and say that META will increase to $300 by the end of 2023. If META were to allocate $40 billion to buybacks and spend an average of $260 per share, META would repurchase 153.85 billion shares. This would bring their share count to 2.46 billion shares. Based on the $23.2 billion of earnings from operations generated in 2022, META would increase its EPS to $9.45 from $8.63 if they generated the same earnings in 2023 because the earnings are being split across 153.85 million shares less. The combination of buybacks and increased earnings from operations could set META up for significant earnings beats and could act as a strong catalyst for shares to go higher.

There is also a possible catalyst that could ignite a strong move in shares of META and that is if TikTok gets banned in the United States. There is no way to quantify what the impacts will be, but META should be an immediate beneficiary as META has poured billions into Instagram Reels to compete with TikTok. While Snapchat (SNAP) and GOOGL will benefit also, META will most likely see a surge of engagement and traffic to Instagram if TikTok is banned. TikTok has already been banned on United States government devices, and the European Union has imposed bans on staff devices as well. United States lawmakers are pushing the current administration for a full-scale ban on TikTok which would impact more than 100 million monthly active users in the United States. Hypothetically if this occurs, META should pick up a significant percentage of these users, making advertising on the platform more enticing.

Conclusion

I do believe we will see shares of META reach $300 in 2023. META has a fortress balance sheet and should increase its profitability in 2023. The combination of buybacks and increased EPS should set META up for ongoing quarterly earnings beats. META continues to grow its user base, and more than 1/3^rd of the globe utilizes its products. As it stands now, I feel META stock looks undervalued compared to big tech, and the largest companies in the S&P. META is taking its medicine, and I wouldn't be surprised if Mr. Zuckerberg shocks everyone in the year of efficiencies, as he is calling it. META is set to release Q1 earnings on 4/26, and we will see how these efficiencies are panning out and get a glimpse into the updated 2023 outlook. No matter what the obstacle has been, META has bounced back, and I believe we're in the early stages of a long-lasting rebound.

I am focused on growth and dividend income. My personal strategy revolves around setting myself up for an easy retirement by creating a portfolio which focuses on compounding dividend income and growth. Dividends are an intricate part of my strategy as I have structured my portfolio to have monthly dividend income which grows through dividend reinvestment and yearly increases. Feel free to reach out to me on Seeking Alpha or https://dividendincomestreams.substack.com/