Meta Platforms, the parent company of Facebook, Instagram, and WhatsApp, has experienced an extraordinary rise in value since its initial public offering in 2012, appreciating nearly 2,000%. However, despite its impressive performance, the stock has not garnered the respect it arguably deserves from the market.
Throughout its journey, Meta has faced numerous challenges, including scandals, boycotts, multimillion-dollar fines, and antitrust investigations. The company has also encountered criticism for its strategic decisions, particularly its ambitious pivot towards the metaverse, and concerns related to the addictive nature of its social media products. Nevertheless, Meta has consistently rewarded its investors, with the stock soaring 577% over the past decade.
The company’s strengths were evident in its most recent earnings report, which led to a 10.4% surge in its share price. Meta reported a remarkable revenue growth of 24%, reaching $59.9 billion. While the company’s spending on infrastructure has resulted in a slight narrowing of profit margins, its operating income still grew by 6% to $24.7 billion. Investors were further encouraged by guidance for the upcoming quarter, predicting revenue between $53.5 billion and $56.5 billion, implying a 30% growth rate—Meta’s fastest in five years. Chief Financial Officer Susan Li attributed this growth to AI-driven investments in advertising that enhance targeting and measurement capabilities, along with the introduction of a generative AI tool designed to assist advertisers in ad creation.
Despite the substantial increase in share price following the earnings announcement, the stock is still viewed as a bargain. After adjusting for a tax valuation charge related to the Big Beautiful Bill, Meta boasted a net income of $74.7 billion last year, translating to an earnings per share figure of $29.04. This results in a price-to-earnings (P/E) ratio of 25.4, which is lower than both the S&P 500’s P/E of 28.1 and that of its peers in the “Magnificent Seven,” a group of some of the largest tech stocks.
Historically, Meta has traded at a discount relative to its peers, despite its rapid growth. It remains unique among large companies, having consistently expanded at a rate unmatched by its competitors while maintaining lower valuations. Over the past eight years, its average P/E ratio has been around 26, comparable to that of the S&P 500, but its revenue growth has averaged 23%. This disconnect raises questions about the market’s ability to accurately value the company.
Similar to Alphabet, Meta’s revenue and profit margins demonstrate impressive growth relative to the broader market, leading to a duopoly in digital advertising. Despite their substantial user engagement and innovative advertising models, both companies have not received valuations that reflect their unique positions within the industry.
Currently, Meta’s stock trades at a market capitalization of $1.8 trillion, with a price range for the day between $713.59 and $732.17. Over the past year, the stock’s price has fluctuated between $479.80 and $796.25, accompanied by significant trading volume averaging 19 million shares daily.
For investors, the low valuation of Meta’s stock may prove advantageous. As Warren Buffett famously noted, lower stock prices can facilitate accumulative buying and allow the company to repurchase shares at favorable levels. Furthermore, Meta’s modest valuation relative to its growth decreases the risk of a steep downturn should the broader market falter. For long-term investors, the current market misunderstanding of Meta’s value could ultimately serve to boost its future gains.
