Meta Shares Up 127% Last Year: Can They Repeat?

Investing

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After a bruising year in 2022, Meta Platforms Inc. (NASDAQ: META) shares made a sharp turnaround in 2023 and rose 127%. A few factors drove the increase. Will those persist? Or will the company make more decisions investors favor? (Here are eight reasons to avoid Meta stock now.)

Investors had two deep concerns about Meta in 2022. The first is that founder Jeff Zuckerberg spent billions of dollars on what he called the “metaverse.” It is a virtual reality play that Wall Street believed would never produce products that could justify the investment. Late in 2022, The Guardian reported, “Outside shareholders wish he’d stick to the safer game of flogging advertising space.”

The second concern was that the ad market would weaken with what was expected to be a weak economy in 2023 and that Meta’s flagship, Facebook, would also lose ad sector market share to Google, Amazon and smaller websites.

How Meta Met Investor Concerns

Source: panida wijitpanya / iStock Editorial via Getty Images

Zuckerberg answered his employee count ramp-up expense question, aimed primarily at the metaverse build-out. Several Meta layoffs that started in 2022 and continued into last year and cost 22,000 employees their jobs. Meta’s message to investors was that it had become serious about ending the increase in expenses.

Meta’s ad revenue did not soften. The opposite happened. Figures from the third quarter showed that trend. Revenue rose 23% year over year to $34.1 billion. Net income rose an extraordinary 164% to $11.6 billion. Cost cuts had improved margins. Zuckerberg’s comment was understated: “We had a good quarter for our community and business.”

The outlook for Meta’s share of the U.S. online ad market is strong for the next several years. It is estimated to have been 20% in 2023 and is forecast to be 19% this year and 18% in 2025. That puts it just behind Google, which has a share of about 24%. In each case, these market shares are of a growing pie as online market revenue continues to rise.

Zuckerberg cannot fire another 22,000 people. However, he can cut back his metaverse expenses to keep margins strong. And the company’s core advertising revenue is just fine. Will Meta stock be up another 127% in 2024? That is unlikely, but it should rise.

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