Meta has produced wonderful results for its longtime shareholders.
Thanks to its incredibly popular social media apps, Meta Platforms (META -1.60%) is one of the most dominant businesses on the face of the planet. And it has undoubtedly been one of the best investments investors could’ve made. In the past decade, shares have soared 609%, turning a $10,000 investment into almost $71,000 today.
As of this writing, Meta carries a market cap of about $1.3 trillion. And it generated trailing-12-month revenue of $150 billion. So, is it too late to buy this “Magnificent Seven” stock?
What’s not to like?
To answer that question, investors must take the time to understand all of the favorable qualities this company possesses. There are a few traits worth highlighting that point to Meta being a high-quality enterprise.
The business has and will continue to keep benefiting from the broad secular trend of the rise of digital advertising. Credit goes to the prevalence of the internet and smartphones that have boosted the number of users and time spent online. This has created virtually unlimited (and expanding) digital real estate that Meta can monetize.
Revenue of $39.1 billion in the second quarter of 2024 (ended June 30) was a jaw-dropping 136% higher than the same period five years ago. And there are more gains on the horizon, given that global digital ad market sales are projected to increase at a 15.5% compound annual rate through the end of this decade.
Meta is also unbelievably profitable. Its overall operating margin was a superb 38% last quarter. The family of apps segment, accounting for 99% of company sales, in particular, boasts an operating margin of 50%.
Producing free cash flow is easy for Meta, as it brought in $23.4 billion through the first six months this year. Management, led by founder and CEO Mark Zuckerberg, plows the cash toward stock buybacks and dividends, further adding to shareholder returns.
Because Meta is already a leader in the tech and internet sectors, it is positioned to also be a leader when it comes to artificial intelligence. There have already been feature introductions. And Meta isn’t shying away from continuing to invest heavily behind this new technology.
For example, Meta AI is a chatbot assistant that can answer users’ various prompts, plus it can create images. Meta hasn’t forgotten about advertisers, either. “Over the long term, advertisers will basically just be able to tell us a business objective and a budget, and we’re going to go do the rest for them,” Zuckerberg said on the Q2 2024 earnings call.
If these AI-powered tools increase utility for key stakeholders, it only helps to strengthen the company’s competitive position.
Speaking of competitive positioning, Meta might possess one of the world’s strongest economic moats fueled by network effects. A phenomenal 3.27 billion people use one of Meta’s social media apps each day. Everyone uses these apps because everyone they know does, leading to impressive engagement that advertisers salivate over.
Meta is a smart investment
Given Meta’s current position as one of the most valuable enterprises in the world, investors are right to wonder if they missed the boat. After all, had you bought shares years ago, your portfolio would have registered big returns.
However, I still think Meta makes for a fine investment candidate right now. The stock trades for a forward price-to-earnings ratio of 24.4, making Meta the second-cheapest “Magnificent Seven” constituent based on that valuation metric. That’s certainly encouraging.
Of course, investors must also consider the company’s prospects, particularly when it comes to the bottom line. According to Wall Street consensus analyst estimates, Meta’s earnings per share (EPS) are expected to increase at a compound annual rate of 23% between 2023 and 2026. And beyond that, it won’t be a stretch to believe that ongoing yearly double-digit EPS gains can happen.
In my opinion, it’s not too late to buy Meta. For those who want to own a top-tier AI-focused business with growth potential, huge margins, and network effects, this is a no-brainer decision.
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.