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Countless thousands of love messages and soppy memes will have been posted across Facebook and Instagram on Valentine’s Day. But what if someone had made a £10,000 commitment to the firm behind both social media apps? In other words, bought Meta Platforms (NASDAQ: META) stock.
How would that have got on since 14 February? Let’s take a look.
Not a great start
Meta stock actually closed at a record high of $736 on that romantic date. As I type (28 April), though, the share price has fallen to $547, reflecting a 25% pullback.
Therefore, if someone had bought ten grand’s worth of shares around that price, their holding would now be worth roughly £7,500 (discounting currency moves).
The stock does pay a quarterly dividend. However, the yield is a minuscule 0.38%, meaning the passive income received in March wouldn’t have been enough to buy fish and chips.
What’s happened?
In the two years prior to this drop, the stock had vaulted over 300% higher. So what has happened since to force such a quick change of heart among investors?
Well, Meta’s near-term growth could weaken after President Trump’s recent tariff announcement. Fittingly, for our Valentine’s theme, the announcement was made in the White House Rose Garden. That’s because the company generates the vast majority of revenue and profits from advertising (about 98%). And with all the uncertainty around global trade, most companies will likely be pausing investments, including marketing and ad spend.
Moreover, the last time there was a severe downturn in global advertising (in 2022), Meta stock dropped 64% in 12 months! Therefore, it’s possible the share price could fall further if something similar happened.
Another issue is the Trump administration ending of duty exemption on goods under $800, which had for years benefitted Chinese e-commerce firms. As a result, both Shein and Temu have announced substantial pullbacks in their US digital ad spend, which will impact Facebook and Instagram.
Surging profits
Despite these near-term challenges, the business looks as strong as ever. It ended 2024 with 3.35bn individual people using at least one of its services (Facebook, Instagram, Messenger, and WhatsApp) every day.
Considering all those apps are banned in China, which has a population of 1.41bn, that’s a truly staggering number!
Revenue grew 22% year on year, clocking in at $165bn, while net profit surged 59% to $62.3bn. That’s equivalent to a whopping 38% net margin!
As most will remember, Meta used to be known as just Facebook. However, it changed its corporate guise in 2021 to reflect its pivot to the metaverse. That hasn’t paid off yet, with the Reality Labs division only growing revenue 13% to $2.15bn last year, despite losing billions.
More recently, the firm has made another pivot to artificial intelligence (AI). Due to the colossal amount of customer data it possesses, it looks perfectly placed to use AI to make targeted ads even more powerful. And it’s in the early stages of monetising WhatsApp.
Attractive valuation
I already have quite a bit of indirect exposure to the company through Scottish Mortgage Investment Trust and a Nasdaq 100 ETF. So I’m personally not looking to invest.
But with the stock trading at just 21.5 times forward earnings, I think it’s worth considering for those wanting to invest in digital advertising.
