Meta Platforms: Dynamic Rise and an Exciting Valuation Question

The shares of Meta Platforms have experienced a remarkable turnaround after a challenging year in 2022. Between the beginning of 2023 and the end of September this year, they increased by an impressive 376%. However, in the current record-setting situation, is it advisable to invest in this top stock from the social media world? Three factors suggest that investing in Meta Platforms could smartly complement your portfolio. One of the main reasons to consider Meta as an investment is the network effect that secures the business foundation and strengthens the competitive edge. With 3.3 billion daily active users across Facebook, Instagram, WhatsApp, Messenger, and Threads, Meta has built a substantial moat. The platforms become more valuable as more users and content join, ensuring Meta extensive market share in the communications sector. While executives with capital could theoretically start a new social media platform, the challenge of attracting users without an existing community remains almost insurmountable. This underscores Meta's dominance in the digital space, demonstrated by an impressive return on invested capital (ROIC) of 31%—triple the S&P 500 average. The financial metrics confirm that Meta's financial performance is compelling due to the efficient use of its resources. Besides financial strength, the growth potential speaks in Meta’s favor: the global digital advertising market shows an upward trend, with a projected leap from $366 billion in 2022 to over $1 trillion by 2030. Meta benefits from this, posting an average operating margin of 34.8% over past years. Cost-saving measures and efficiency improvements have further strengthened the results. Thanks to solid financial resources and top-tier tech talent, Meta can also invest massively in artificial intelligence to expand infrastructure and computing capacity. Despite the strong stock gains in recent years, the entry point might appear less attractive against the backdrop of the current valuation. However, with a price-to-earnings ratio of 29.2 and a 9% discount to the Nasdaq 100 Index, the shares are still appealing given the growth expectations of analysts, who forecast annual EPS growth of 23.6% from 2023 to 2026. Overall, Meta Platforms represents a promising investment. Nonetheless, it is advisable to consider analyses from other experts before making purchase decisions.