Meta Stock: Buy It For The Next Decade (NASDAQ:META)

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Galeanu Mihai

Meta (NASDAQ:META) has been in the news lately, and not for good reasons. The company missed Q3 earnings estimates badly and lowered fourth quarter guidance. Declining ad revenue and higher costs put pressure on Meta’s sales, margins, profits, and share price. The company’s stock crashed by approximately 25% Thursday, as traders dumped shares first and didn’t ask many questions.

META 1-Year Chart

META

META (StockCharts.com )

Remarkably, Meta’s stock price is down by a staggering 75% since the epic tech top blew off last November. Meta was in the elite club of the trillion-dollar tech juggernauts around its peak. Unfortunately for many shareholders, Meta’s market cap has dwindled to just about $266 billion. However, Meta’s revenue and earnings decline phase is transitory. The company remains a dominant market leader in the online ad space and should return to revenue and EPS growth in the coming years.

Meanwhile, the stock is absurdly cheap at roughly two times sales and a P/E ratio of around 10. The near-term downside is likely limited for Meta’s stock now. However, as Meta returns to revenue growth and improves profitability, its stock price should increase considerably, making it one of the best stocks to own for the next decade.

Earnings – A Transitory Problem

While Meta beat Q3 revenue estimates by approximately $300 million, the $27.7 billion sales figure was 4.5% below last year. However, it was Q3’s EPS that spooked investors even more. Meta delivered $1.64 in EPS, badly missing the consensus mark by 22 cents. Moreover, in Q3 2021, the company had a whopping $3.22 in EPS. So, we’re looking at a 49% YoY EPS decline. Pretty shocking, right?

Nevertheless, there was more bad news. Meta’s average price per ad decreased by 18% YoY. I began warning of the spread of ad revenue declines in May in my “Snap’s Warning For Everyone” article (Meta’s stock was around $220 then). Meta’s ad sales have been softening for months, and we see its ad revenues and profits continuing to slide. Meta expects fourth-quarter total revenues to be $30-32.5 billion vs. $32.21 consensus estimates. Q4 2021 revenue came in at $33.67 billion. Presuming that Meta can hit the mid-range of its estimate ($31.25 billion), we’d see about a 7% YoY revenue decline. Naturally, this is not pretty, but the good news is that Meta’s revenue and earnings decline phase is probably transitory and will likely pass soon. Once the downturn concludes, Meta should return to growing sales and increasing 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 in the coming years.

Facebook Monthly Active Users (MAUs)

FB MAUs

FB MAUs (Statista.com )

Facebook has around 3 billion monthly active users and roughly 2 billion Daily Active Users (DAUs). Also, both numbers increased on a YoY basis. MAUs grew by 2%, and DAUs increased by 3% YoY. These are massive numbers representing much of the global population using the Internet. While Facebook has a giant ecosystem that should not be underestimated, the company’s goldmine is Instagram.

Instagram stats

Instagram stats (Statista.com )

Instagram has well over a billion users and is one of the most popular and influential social media platforms globally. Moreover, we see that IG is growing and should continue providing robust growth for Meta in the coming years. Also, remember that Meta owns WhatsApp, which has about 2 billion users, and Messenger, with more than one billion. In addition, Meta owns numerous secondary businesses with significant growth and profit potential to make up for declining social media growth in future years.

Let’s Look At Some Numbers

The company’s estimates got slashed severely due to Facebook’s transitory revenue and earnings decline phase.

EPS Revisions

EPS revisions

EPS revisions (SeekingAlpha.com )

The revisions have been brutal and an ongoing phenomenon for quarters. However, many analysts’ estimates may be overly pessimistic after the recent report. Meta’s 2027 consensus EPS estimate dropped from around $35 to roughly $13 over the last year. In fact, after such draconian downgrades, many analysts seem convinced that Meta will show very little or no EPS growth in future years.

We have an extraordinary situation with Meta. The market doesn’t believe in Meta’s ability to return to sufficient revenue growth and questions the company’s earning potential. However, the market is likely looking very short term here. The economic downturn won’t last forever, and while Meta’s profits are dropping due to less ad spending and higher costs, this too shall pass. Meta is one of the few critical technology companies like to dominate over the next decade. Therefore, despite the absurdly negative sentiment and the rock-bottom EPS and growth estimates, Meta is one of the top stocks to own over the next 10 years. Also, there’s a high probability that Meta may surpass consensus EPS and revenue estimates as the company advances.

Revenue Estimates

Revenue estimates

Revenue estimates (SeekingAlpha.com )

Meta’s consensus revenue estimate has dropped to about $116.5 billion this year. This result would equate to a YoY revenue decline of roughly 1.2%. However, my estimate is $118 billion, roughly flat relative to 2021 revenues. Next year’s revenue estimates range from $116 – 147 billion, a vast range. Nevertheless, next year’s consensus estimate is about $124 billion (lowballed, in my view). This revenue increase would represent YoY growth of about 7%. I estimate a 10% YoY revenue increase to roughly $130 billion in 2023. After that, we could see Meta provide high single to low double-digit revenue growth through 2030.

Here’s What Meta’s Financials Could Look Like As We Advance:

Year202220232024202520262027202820292030
Revenue Bs$118$130$145$165$184$205$225$245$265
Revenue growth0%10%12%13%12%11%10%9%8%
EPS$9.50$12$15$19$22$26$31$37$45
Forward P/E81214161716151312
Stock price$100$180$266$330$442$496$555$585$600

Source: The Financial Prophet

The Bottom Line

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



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