Shares of Meta Platforms (META -0.81%) have experienced remarkable growth in 2023, more than doubling in value. While some may believe it’s too late to invest, there are several factors indicating that there’s still ample opportunity for investors to buy Meta stock. This article highlights three key reasons why adding Meta shares to one’s portfolio could be a prudent decision.
Reason 1 – The Year of Efficiency Will Reset Operating Expenses
Meta’s projected reduction of approximately $9 billion in operating expenses for 2023 presents a significant opportunity for increased profitability. This expense reset not only benefits the current year but also sets a more favorable trajectory for future years. Comparatively, in 2022, Meta recorded $88 billion in operating expenses against $29 billion in operating income. Despite a similar expense forecast for 2023, Meta’s revenue is expected to grow, with a 3% increase in the first quarter and a projected 7% growth in the second quarter. These revenue gains should bolster Meta’s bottom line through improved leverage. Although the company expects an increased operating loss from Reality Labs in 2023, it plans to manage operating expenses to demonstrate an improved operating margin for the metaverse business in 2024 and beyond.
Reason 2 – Reels Monetization Continues to Improve
While Reels has driven engagement on Instagram and Facebook, it has yet to reach optimal monetization levels. However, Meta anticipates achieving net neutral monetization from Reels by the end of the year, offsetting its lower monetization rate. Meta has made notable progress in this regard, with a 17% increase in Reels ad load last quarter. This growth rate has accelerated from 16% in Q1, supported by Meta’s ongoing enhancements in artificial intelligence capabilities, which provide better recommendations and performance tracking for advertisers. These innovations enhance the value of Reels ads, attracting new advertisers to the platform. Looking ahead, Reels is poised to become an additive force in Meta’s overall advertising business as its monetization levels align with Feed and Stories.
Reason 3 – Secular Trends Favor Meta Once Again
After experiencing a decline in revenue in 2022 due to economic uncertainty and changes in user tracking across apps on Apple’s iOS, Meta is now poised to benefit from positive market trends. Marketers have begun increasing their spending on digital advertising once more, as observed in year-over-year spending growth in both April and May. This shift is particularly favorable for Meta, which operates in the digital advertising space. As digital advertising continues to gain a larger share of ad spending compared to traditional media, Meta is well-positioned for strong revenue growth in the coming years. When combined with improved Reels monetization and reset operating expenses, Meta’s profit potential remains robust.
Despite the significant growth in Meta stock, investors should not overlook the favorable conditions that make it an appealing investment option. With the prospect of reset operating expenses, improving Reels monetization, and the resurgence of digital advertising, Meta is poised for continued success. Although the stock has gained momentum, its current enterprise value to EBITDA ratio remains below 20, suggesting a fair price for entry. Therefore, investors should consider Meta stock as a promising addition to their portfolios.