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Shares of the social media giant Meta Platforms are among the best-performing stocks in the S&P 500 Index ($SPX) this year. The stock has risen by 183% year-to-date, led by its efforts to cut costs, drive engagement on its platform, and advance artificial intelligence (AI)-driven capabilities.
Despite the significant rise in its share price, Meta Platforms’ dominance in the social media space supports its bull case. At the same time, benefits from lower cost structure, investments in AI, and acceleration in ad revenues position it well to deliver impressive growth. As such, investors should keep an eye on Meta Platforms stock and consider buying its shares on pullbacks.
Against this backdrop, let’s take a look at the factors to understand why outperforming Meta stock is worth buying.
Dominance in Social Media
The primary factor that drives Meta Platforms’ revenue is its ability to deliver engaging experiences, and its effectiveness at monetizing that engagement over time. The company owns some of the most popular social media platforms, including Facebook, Instagram, and WhatsApp. These platforms have billions of users globally, providing a vast user base for potential monetization.
What stands out is that its Family of Apps continues to grow. Meta highlighted that, in September alone, nearly 3.14 billion individuals utilized at least one of its Family of Apps daily, with approximately 3.96 billion engaging on a monthly basis. Facebook’s global growth is remarkable, maintaining robust engagement despite intensified competition from TikTok. Facebook’s daily active users (DAUs) were 2.09 billion, up 5% compared to last year.
Furthermore, the success of Reels continues, demonstrating positive outcomes from ranking enhancements and product improvements. Meta reported that Reels has contributed to a more than 40% increase in time spent on Instagram since its launch and achieved a monetization milestone ahead of schedule. Looking ahead, Meta intends to maintain its focus on Reels, considering it a key component of its comprehensive portfolio of video services, which collectively represent over half of the time spent on both Facebook and Instagram.
On the monetization front, the company is experiencing improvement. Reels is now neutral to overall revenue. As Meta is scaling Reels as a consumer product, it is now a part of the core experience on Instagram and Facebook. Meta anticipates Reels will be a modest tailwind to its top line in 2024. At the same time, it will drive engagement and revenue growth.
Overall, the company is rolling out new services aimed at driving engagement. Moreover, its AI-driven feed recommendations continue to drive incremental engagement. In summary, Meta is well-positioned to maintain its dominance in the social media space, which will continue to support its top line in the coming quarters.
Investments in AI to Support Growth
Meta started rolling out Meta AI, its new assistant that users can access across all its messaging experiences and smart glasses. This advanced assistant facilitates users in obtaining answers to queries, accessing real-time information, and generating photorealistic images. Additionally, the company has introduced the AI Studio platform that enables users to create and interact with different AIs. Furthermore, it rolled out Emu, its image creation model that produces high-quality images and stickers quickly.
Impressively, Meta has integrated sophisticated recommendation AI systems into its feeds, Reels, ads, and integrity systems. The company is leveraging AI across its ads systems and suite of products, which is contributing to enhanced performance for advertisers and subsequently spurring demand for Meta's offerings.
Looking forward, Meta Platforms is poised to expand the utilization of larger, more advanced advertising models, leveraging AI to power its ad products with heightened automation for advertisers. The company is experiencing notable success with its Advantage+ Shopping solution, particularly in e-commerce, which has emerged as a key driver of its overall growth.
Bottom Line
Meta Platforms’ social media dominance and use of AI will enable it to drive engagement and improve monetization. Further, the company has drastically reduced costs and is focusing on enhancing efficiency, which will translate into improved financial results on the profitability front. This is echoed through analysts' optimistic sentiments in their bullish outlook on META.
Out of the 38 analysts covering Meta Platforms stock, 36 have a “Strong Buy” recommendation, one analyst recommends “Moderate Buy,” and one has a “Strong Sell.” Moreover, the average price target is $381.11, which implies about 11.6% upside potential from current levels.
