Meta is looking solid ahead of its scheduled earnings report.
The Meta Platforms (META -0.45%) of today is a far cry from the simple website it was at the beginning. Today, the company owns a family of apps that mediate social interaction for billions of people worldwide.
When was the last time you posted to Instagram? How about the last time you messaged someone on WhatsApp? Bought something on Facebook Marketplace? Meta is part of daily life for much of the world, and that makes it very valuable. It recently surpassed $1 trillion in market capitalization and is now the seventh-largest company in the world.
The company achieved this after its stock soared more than 43% since this time last year. Now that’s a big move, but I think it could go much further. Despite this run-up, Meta is still undervalued. With the company gearing up to release Q2 earnings on July 31, let’s consider why.
1. Meta products reach a staggering amount of people across the globe
Every day, 3.24 billion people worldwide use Meta products. It owns the first-, third-, fourth-, and seventh-most-popular social media platforms in the world, reaching the most people of any social media company.
Yes, younger users are migrating away from Facebook, but about 43% of its users are between 18 and 34. And Meta has Instagram, which remains very popular with younger users.
The company is growing its user base steadily. The first quarter Q1 saw a 7% bump year over year. Pay attention to this metric on July 31.
2. Meta’s billions of eyeballs mean billions of dollars for the bottom line
All these users make Meta’s virtual real estate extremely valuable. That’s good news for the company; it makes 99% of its revenue from selling ads, and the company has been growing its bottom line at a strong clip for some time now. Look at this growth over the last five years.
META Revenue (TTM) data by YCharts
Growth leveled off for a moment in 2022, a tough year for tech across the board, but it’s back in high gear. Last quarter, the company reported a 27% jump in revenue from a year ago, largely stemming from the 20% jump in ad impressions, which were 6% more expensive compared to the same period in 2023. Consensus estimates put Q2 revenue growth at just shy of 26%. Let’s see Meta delivers.
3. Meta’s AI story is just taking flight
Much of the focus of the artificial intelligence (AI) boom for the last year and a half has been on Nvidia, Microsoft, and Alphabet, but Meta is back in the spotlight after the release of Meta AI, an AI product that is integrated across its family of apps. Meta CEO Mark Zuckerberg believes the chatbot will be the most widely used in the world by the end of the year. Now, CEOs are always making bold claims, but Meta AI will be freely available and integrated into the apps that 3.24 billion people use every day, so I wouldn’t be surprised if his claim holds up.
Powering Meta AI is the company’s large language model (LLM), dubbed Llama. The newest version, version 3.1, just came out and with it, the company makes a bold move. Llama is now open source, meaning people from all over the world can contribute to its growth and development. The other major players, like ChatGPT, are proprietary; only employees can interact with the backend. Zuckerberg is making a bet that the collective knowledge of the public can help Llama outpace its rivals. It’s a risky bet, but one that could pay off and that makes Meta stand out from the crowd.
4. Despite all it has going for it, its stock is still cheap
If all that weren’t enough, Meta’s stock is one of the cheapest in tech. Look at this chart of its price-to-earnings ratio (P/E) compared to its competitors’.
NVDA PE Ratio (Forward) data by YCharts
The only company valued lower is Alphabet, and only by a hair. If you also consider its forward price/earnings-to-growth (PEG) ratio — a valuation metric that divides P/E by its expected growth rate — Meta looks even better. Alphabet has a five-year forward PEG of 1.24, while Meta’s is just 1.07. There are, of course, other ways to look at valuation, but in my eyes, Meta looks like a great deal at the moment.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. 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. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.