Is it possible that the company will no longer provide superior returns?
In the past five years, a lot has happened at Meta Platforms (META 0.53%). In 2018, the brand was still known as Facebook despite the company’s struggles to recover from the fallout of several high-profile data breach scandals.
The social media company changed its name in an attempt to distance itself from these scandals, and the move was met with some success. Meta Platforms, however, is experiencing new difficulties. How will the business weather these storms over the next five years? Is it a good time to invest in the company’s stock?
Online marketing is on the upswing.
Few businesses can survive economic turmoil unscathed. In this regard, Meta Platforms stands alone. The company’s primary revenue source, online advertising, has taken a significant hit over the past year. Inflation-caused price increases and falling consumer demand across a wide range of products and services led many companies to cut back on advertising spending.
For the first time in quite some time, Meta saw a drop in its revenue stream last year. Sales for the year totaled $116.6 billion, down 1% from the prior year and 2% from 2020.
With any luck, the online advertising industry will be able to ride out the current economic downturn and emerge stronger in five years. The potential for expansion in this industry is substantial. Businesses can get more for their money when they advertise online because they can create more targeted campaigns. From 2017 to 2027, it is predicted to expand at a CAGR of 14.7 percent.
Given that Meta’s websites and apps have 3.74 billion monthly active users, the company’s revenue should increase over the next five years. It would be foolish to discount such a sizable ecosystem.
Increasing Revenue from New Directions
The fact that Meta Platforms is just beginning to make money off of its apps is one of their many selling points. This is especially true of WhatsApp. With this goal in mind, the company has been developing a paid messaging feature for the platform.
WhatsApp and Messenger also feature ads that users can click on to start a conversation with the company. Meta estimates that this capability has a $10 billion annual revenue run rate. In 2022, that will account for slightly under 10% of the company’s revenue, but in five years, as the business grows, that number will likely increase.
Meta has more than one way to approach a problem. For instance, Facebook Reels (short videos) are rapidly expanding and present yet another avenue for monetization. Or think about the online retail sector, where the firm has been trying to break through for years.
As a means of facilitating online commerce and reaching Facebook’s massive user base, Meta has introduced features like Facebook and Instagram Shops. Shop Ads, which let businesses release hyper-targeted advertisements based on users’ purchasing histories, are also expanding rapidly. Expect the company to make substantial progress in e-commerce within the next five years, as this is another important long-term opportunity.
Where does the metaverse fit in?
To better reflect its newfound interest in the metaverse, Meta Platforms rebranded as simply “Meta.” The company has sunk a lot of money into this $1 trillion opportunity, but so far it hasn’t paid off because the metaverse is only partially functional. In five years, do you expect it to be profitable? In my opinion, it won’t, and that means it will keep eating into Meta Platforms’ profits.
The company’s net income dropped by 41% from the previous year, to $23.2 billion, last year. However, it is currently in the midst of an effort to cut costs and prices. That includes reorganization and layoffs.
These steps should help it better absorb investments related to the metaverse, keeping it on track to capitalize on this promising opportunity.
Is it wise to invest in Meta Platforms?
Despite difficulties, I have faith that Meta will recover in (much) less than five years. Eventually, the company’s revenue and profits should begin to rise again. It will also make significant progress in monetisation, leading to an expansion of revenue streams.
This is why it’s a good idea to invest in Meta Platforms stock now and hold it for at least the next five years.