Meta Platforms(NASDAQ: META) stock has been in fine form on the market in the past year, clocking solid gains of 74% as of this writing and outperforming the tech-laden Nasdaq-100 Technology Sector index's gains of 22% by a healthy margin. The social media giant's impressive gains can be attributed to the robust growth in revenue and earnings over the last few quarters.
Meta seems to be gaining ground in the lucrative digital advertising space thanks to its focus on integrating advanced tools such as artificial intelligence (AI) to help drive stronger returns for advertisers. But what if you're one of those investors who missed the Meta gravy train? Will it be a good idea to buy this tech stock now in anticipation of more gains? Let's find out.
Analysts aren't expecting Meta Platforms stock to deliver outsized gains in the coming year
According to 68 analysts covering Meta, the stock has a median 12-month price target of $575, which points toward gains of just 9% from current levels. It is worth noting that 85% of the analysts rate Meta stock as a buy, and the Street-high price target of $660 points toward a 25% jump in the stock price.
However, a closer look at Meta's prospects and the pace at which it has been growing will tell us that it could easily outpace Wall Street's expectations. The company's revenue in the first six months of 2024 has increased almost 25% year over year to $75.5 billion. Even better, Meta's adjusted earnings during this period have shot up 90% year over year to $9.86 per share.
Analysts are expecting Meta to finish 2024 with a 20% increase in revenue to $161.6 billion. However, the company's growth rate in the first half of the year suggests that it is on track to exceed that mark. More importantly, the pace at which Meta is growing clearly tells us that the company is cornering a bigger share of the digital advertising market.
According to eMarketer, digital ad spending is estimated to grow 12.2% in 2024, up slightly from the 12% increase seen last year. Meta's revenue growth of 16% in 2023 suggests that it was outperforming the digital ad industry last year as well, and the trend has continued in 2024. The company has been delivering more ad impressions through its family of apps, and the good part is that advertisers are spending more money on its platform.
For instance, in the second quarter of 2024, the number of ad impressions across Meta's family of apps increased by 10% from the same period last year. There was a similar increase in the average price per ad as well, which explains why the company reported robust growth in its top and bottom lines. The reason why advertisers are willing to spend more money on Meta's platform is because its AI tools are helping drive a greater return on investment.
Nearly all the company's advertising customers are using at least one of its Advantage+ suite of AI advertising tools so that they can improve audience targeting and ad placement. More importantly, a survey of more than 1 million U.S. advertisers conducted by Meta has revealed that there has been a 12% increase in returns on ad spending on the company's platform since 2022.
The company's focus on serving AI-recommended content to users and allowing businesses to chat with their customers using AI is likely to unlock a bigger growth opportunity in the future and help sustain its impressive growth. After all, adoption of AI in the digital ad market is forecast to increase at an annual rate of 31% through 2027, and Meta is doing the right thing by increasingly adopting this tech so that it can stay ahead of the curve in the digital ad space.
Investors should also note that the digital ad market is forecast to clock double-digit growth rates over the next couple of years, growing 11.4% in 2025 and 10.4% in 2026. Meta's growth estimates for the next couple of years indicate that it is expected to keep growing at a faster pace than the digital ad space.
META Revenue Estimates for Current Fiscal Year data by YCharts
The valuation is too attractive to ignore
Though Meta Platforms stock has recorded impressive gains in the past year, it still trades at an attractive 26 times trailing earnings, which is a discount to the U.S. technology sector's average price-to-earnings ratio of 44. The forward earnings multiple is even more attractive at 22, pointing toward a stronger bottom-line performance.
As the chart indicates, Meta's earnings per share are expected to grow at healthy double-digit rates over the next couple of years.
META EPS Estimates for Current Fiscal Year data by YCharts
Assuming the company's earnings indeed increase to $27.97 per share after a couple of years and it continues to trade at 26 times earnings at that time, its stock price could hit $727. That would be a 38% increase from current levels.
However, don't be surprised to see this tech stock delivering stronger gains, as the market may reward it with a stronger earnings multiple because of its stronger growth, which is why investors who haven't bought Meta Platforms yet should consider doing so before it is too late.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.
