Meta Stock: Buy it for the next decade (NASDAQ:META)

Victor Dergunov profile picture

Galeanu Mihai

goal (NASDAQ: META) has been in the news lately, and not for good reason. The company missed third-quarter earnings estimates and lowered fourth-quarter guidance. Declining ad revenue and higher costs put pressure on Meta’s sales, margins, profits and stock price. company Shares plunged about 25% on Thursday as traders dumped the stock first and didn’t ask many questions.

1-Year META Chart

GOAL

GOAL (StockCharts.com )

Surprisingly, Meta’s stock price is down a staggering 75% since the Epic tech top flew last November. Meta was in the elite club of the trillion dollars Tech giants at their peak. Unfortunately for many shareholders, Meta’s market capitalization has shrunk to around $266 billion. However, the phase of falling revenues and profits of Meta is transitory. The company remains a dominant market leader in the online ad space and should return to revenue and earnings per share growth in the coming years.

Meanwhile, the stock is absurdly cheap at about twice the sales and a P/E ratio of around 10. The short-term downside is probably limited for Meta stock now. However, as Meta returns to revenue growth and improves profitability, its share price should rise sharply, making it one of the best stocks for the next decade.

Earnings: a transitory problem

Weather Meta beat third quarter revenue estimates At approximately $300 million, the sales figure of $27.7 billion was 4.5% lower than last year. However, it was the third quarter EPS that spooked investors even more. Meta delivered $1.64 in EPS, well below the consensus mark of 22 cents. Furthermore, in the third quarter of 2021, the company had a huge $3.22 in BPA. So we’re looking at a 49% year-over-year decline in EPS. Pretty shocking, right?

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However, there was more bad news. Meta’s average price per ad decreased 18% YoY. I started warning about the spread of declining ad revenue in May on my “Snap warning to everyone(Meta shares hovered around $220 at the time.) Meta’s ad sales have been weakening for months, and we see their ad revenue and earnings continue to fall. Meta expects total fourth quarter revenue to be $30-32.5 billion vs. consensus estimates of $32.21 Fourth quarter 2021 revenue reached $33.67 billion. Assuming Meta can hit the mid-range of their estimate ($31.25bn), we would see revenue decline 7% year over year. Naturally, this isn’t pretty, but the good news is that Meta’s revenue and earnings decline phase is likely to be transient and will likely pass soon. Once the recession is over, Meta should return to growing sales and growing profits again.

Revenue growth and EPS expansion should return

Meta, or Facebook as I still like to call it, is a dominant, market-leading company with exceptional revenue growth and profitability potential. Facebook and its units amount to a social media monopoly, which should be very good for the company’s business for years to come.

Facebook Monthly Active Users (MAU)

FB MAU

FB MAU (Statista.com)

Facebook has about 3 billion monthly active users and about 2 billion Daily Active Users (DAU). Also, both numbers increased year over year. MAUs grew 2% and DAUs 3% YoY. These are massive numbers that represent much of the world’s population using the Internet. While Facebook has a giant ecosystem that shouldn’t be underestimated, the company’s gold mine is Instagram.

instagram stats

instagram stats (Statista.com)

Instagram has over a billion users and is one of the most popular and influential social media platforms globally. Furthermore, we see that IG is growing and should continue to provide strong growth for Meta for years to come. Also, remember that Meta owns WhatsApp, which has around 2 billion usersand Messenger, with over a billion. In addition, Meta has many side businesses with significant growth and earnings potential to offset declining social media growth in the coming years.

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Let’s look at some numbers

The company’s estimates were lowered sharply due to the transitory phase of declining revenues and earnings for Facebook.

EPS reviews

EPS reviews

EPS reviews (SeekingAlpha.com)

The reviews have been brutal and an ongoing phenomenon for quarters. However, many analysts’ estimates may be too pessimistic after the recent report. Meta’s 2027 consensus EPS estimate has fallen from around $35 to about $13 over the past year. Indeed, after these draconian downgrades, many analysts seem convinced that Meta will show little or no EPS growth for years to come.

We have an extraordinary situation with Meta. The market does not believe in Meta’s ability to return to sufficient revenue growth and questions the company’s earnings potential. However, the market is likely to look very short here. The economic downturn won’t last forever, and while Meta’s profits are falling due to lower ad spend and higher costs, this too shall pass. Meta is one of the few critical technology companies that it wants to dominate for the next decade. So, despite the absurdly negative sentiment and rock-bottom growth and EPS estimates, Meta is a top stock for the next 10 years. In addition, there is a high probability that Meta could exceed consensus EPS and revenue estimates as the company moves forward.

Income estimates

Income estimates

Income estimates (SeekingAlpha.com)

Meta’s consensus revenue estimate has been lowered to about $116.5 billion this year. This result would be equivalent to a year-over-year decrease in revenue of approximately 1.2%. However, my estimate is $118 billion, roughly equal to 2021 revenue. Next year’s revenue estimates range from $116 to $147 billion, a wide range. However, the consensus estimate for next year is about $124 billion (low level, in my opinion). This increase in revenue would represent year-on-year growth of around 7%. I estimate revenue growth of 10% year-over-year to approximately $130 billion in 2023. After that, we could see Meta deliver single- or double-digit revenue growth through 2030.

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Here’s what Meta’s financials could look like as we go:

Year 2022 2023 2024 2025 2026 2027 2028 2029 2030
Income Bs. $118 $130 $145 $165 $184 $205 $225 $245 $265
revenue growth 0% 10% 12% 13% 12% eleven% 10% 9% 8%
EPS $9.50 $12 $15 $19 $22 $26 $31 $37 $45
Forward P/E 8 12 14 sixteen 17 sixteen fifteen 13 12
Market price $100 $180 $266 $330 $442 $496 $555 $585 $600

Source: The Financial Prophet

The bottom line

Meta is one of the world’s leading technology companies and is essentially a social media monopoly. Therefore, revenue growth should return and increase in the coming years. Some people may have different views, but Meta’s leadership position in the metaverse space could pay off enormously in the years to come. Therefore, the company’s revenue, earnings and share price could rise more significantly than many rock-bottom estimates imply. With modest revenue growth, annual EPS growth of around 15% to 25%, and modest P/E multiple expansion, Meta’s stock price should appreciate substantially over the next decade.

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