Will META Stock’s $1 Trillion Valuation Stick This Time?

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Meta Platforms (NASDAQ:META) blew through the trillion-dollar valuation threshold after reporting its best-ever quarterly results. Yet it’s not the first time the social media influencer has attained a $1 trillion market capitalization. This will have big implications for META stock holders.

Meta joined the elite club back in 2021 but that was as good as it got. META stock immediately returned from the stratosphere on what would become a 77% loss of value. It’s been a long road back and investors rightly wonder how long it will stay this time.

If you only watched Meta’s rise from the sidelines, should you buy in now or have you missed all the gains? And if you already own the stock, is now the time to take profits off the table or even sell the stock outright? Here’s why I think investors should hold tight.

Birds of a feather flocking together

Opportunities perfectly aligned for Meta Platforms in the fourth quarter. The owner of Facebook, Instagram and WhatsApp enjoyed the synergies between the platforms that allowed for greater engagement. Daily active people across the platforms increased 8% to 3.19 billion in December. Monthly active people hit 3.98 billion, a 6% increase. 

Where the people are, the ad dollars will follow. Digital ad impressions surged 21% on a constant currency basis in the quarter with revenue jumping 25% year over year. That’s likely to continue throughout the rest of the year. This is an election year and spending will skyrocket at the same time Meta will come up against easier comparisons to year-ago figures.

As artificial intelligence (AI) becomes more prolific in making decisions advertisers will be able to even better target where ad dollars should be spent. As users gravitate to Meta’s platforms it will be the beneficiary of the largesse.

The quarterly gains all led to META stock declaring its first dividend. The social media site will pay a quarterly dividend of 50 cents per share which yields just 0.1% at current prices.

As good as it gets

The coming year looks as though it will be a strong one for Meta’s operations. But that will represent grabbing the easy money to be made. Once the elections are over Meta will be facing more difficult year-over-year comparisons. Coupled with what is likely to be a falloff in ad spending results will look worse.

There is also the possibility for a longer slide in ad spending too. Meta says China-based companies account for 10% of revenue on the platforms. Growing geopolitical tensions could make it difficult for these businesses to continue spending on Meta. 

Temu, for example, the e-commerce outlet of PDD Holdings (NASDAQ:PDD), spent $3 billion in advertising last year, The Financial Times reports. An estimated $1.2 billion of it went to Meta. That is not sustainable. The company is losing 30% to 35% on every U.S. order and 40% globally, according to estimates according to Chinese news outlets.

China’s economy is also expected to slow dramatically in 2024. The World Bank is looking for a substantial pullback in economic activity and notes “The outlook is subject to considerable downside risks.” The country’s real estate market is shaky and consumer spending hasn’t returned to pre-pandemic levels. All this could impact ad spending.

Don’t bet the farm

Having come so far so fast — again — Meta Platforms might not be able to sustain the momentum. It might not fall back to earth quite as quickly this time because of the unique aspects of the coming year but longer term could see a decline.

I’ve liked META stock as an investment but I would be cautious about buying shares now at these prices. At 20 times estimates earnings, 9 times sales and 28 times free cash flow, Meta Platforms trillion-dollar valuation may get discounted sooner than many expect.

On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.

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