Meta Platforms Stock: Buy, Hold, or Sell?

Globe and Mail

29-03-2025

Meta Platforms ' (NASDAQ: META) shares have been through a remarkable ride over the last two years after hitting a low in 2022.
Thanks to its successful turnaround efforts, the social media giant has delivered another year of solid performance, sustaining the momentum achieved in 2023. Unsurprisingly, its solid performance drove the stock price to a new all-time high in 2024.
But investors might now be facing other dilemmas. Is now the time to buy the stock? Or, for those who already own the stock, is now a good time to sell?
Family of Apps continues to deliver on its promises
Last year marked another period of solid performance by Meta's core advertising business. Revenue grew by 22%, while income from operations jumped 39%.
Such a performance was remarkable, considering that Meta was already generating $133 billion in revenue and $63 billion in operating profit in 2023. It's even more impressive if we consider that the tech giant faced huge challenges with stagnant revenue and falling profits in 2022. In other words, it went from being a problem child to reaching new heights in both revenue and profits.
Meta's solid comeback reflects the strength of its business model. With 3.35 billion daily active users (DAU), Meta is the biggest social media networking company -- it owns Facebook, Messenger, Instagram, and WhatsApp. Better still, this number continues to grow -- it expanded by 5% year over year in the latest quarter.
As owner of the largest social network, Meta offers a compelling service for users to stay connected with friends and family. In return, users remain highly engaged with its services, enabling the tech giant to grow its advertising business over time. In 2024, ad impressions and ad pricing rose by 11% and 10%, respectively, underscoring the attractiveness of this business.
Meta has continuously worked on its product offerings to delight its users, the latest being incorporating artificial intelligence (AI) into its apps. For instance, the company improves its content feed to users by employing the latest AI technology, making sure users get the right content to keep them engaged. It also expects that Meta AI, a highly intelligent and personalized assistant, will reach its users in the near future.
Assuming that it delivers on its AI promises, Meta is well-positioned to keep its user base even more engaged in the near future. That, in turn, should keep its advertising business robust (and growing) for a while.
Reality Labs remains deeply in the red
While Meta's core business continues to fire on all cylinders, its investment in the metaverse business remains a question mark.
In 2024, this business continued to bleed cash as its operating losses grew from $16 billion to $18 billion. Despite its growing losses, revenue remained almost unchanged at $2 billion. This poor performance suggests that the tech company faces challenges in monetizing this business.
On one hand, the company remains optimistic about the future of this industry, and for good reason. According to Statista, the metaverse market size could reach $508 billion by 2030. It makes sense for Meta to invest early on to position itself as a potential winner. Besides, the metaverse complements the company's existing social networking business, especially if users choose to engage with their friends in the metaverse environment in the future.
The downside is that there is no certainty as to when the metaverse will reach mainstream or how big the addressable market size will eventually be. After all, the half-trillion-dollar market size is just a prediction. If the market opportunity fails to materialize, the tens of billions of dollars invested (yearly) would be value-destroying.
An overview of Meta's stock valuation
Another aspect that investors should consider before making any move on Meta's stock is its valuation. As of this writing, the stock has a price-to-earnings (P/E) ratio of 28, which is on the higher end of its range in the last five years.
While it's not unreasonable for the stock to trade at a rich multiple, considering the quality of the advertising business, investors are not getting any bargains in buying the stock at its current valuation.
What it all means for investors
Meta ended 2024 with a bang as its advertising business returned to its historical growth trajectory. As the company monetizes its app family, it could sustain growth in the coming quarters.
The downside is that its investment in Reality Labs remains deeply in the red, consuming enormous profits from its advertising business. Besides, Meta's stock doesn't trade at a bargain price, so investors don't get much of a margin of safety.
While Meta stock is not a sell, it's hard to advocate buying it right now. It's best for those who already own the stock to hold on to it, while potential investors should wait for a better entry point.
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