KEYTAKEAWAYS
- Diverse Product Portfolio and Growing User Base: Meta's "Family of Apps" including Facebook, Instagram, and WhatsApp, continue to dominate social media with a growing user base, signifying its robust market presence and potential for sustained revenue growth.
- Innovative Subscription Model in Europe: Meta's introduction of an ad-free subscription model in Europe is a strategic move to comply with GDPR while opening new revenue streams, showcasing its adaptability to changing regulatory landscapes.
- Challenges in Expanding Beyond Social Media: Despite its dominance in social media, Meta faces challenges in diversifying, as evidenced by the losses in its Reality Lab division and the discontinuation of its NFT and cryptocurrency projects.
CONTENT
THE INTRODUCTION AND RECENT DEVELOPMENTS OF META
Source: CNBC
Meta is a technology company primarily focused on social networking and virtual reality products. It has two main divisions: the “Family of Apps,” which includes well-known platforms like Facebook, Instagram, WhatsApp, Messenger, and the recent sensation, Threads, and the “Reality Lab,” a newly established department dedicated to the development of virtual reality (VR) and augmented reality (AR) technologies.
Meta (formerly known as Facebook) is a multinational technology giant with a staggering $808.479 billion market capitalization and a price-to-earnings (P/E) ratio of 27.78. Over the past 12 months, Meta has achieved earnings of $48.43 billion per share, with a shareholder equity return of 23.41% and a substantial gross profit margin of 78.96%, signifying its ability to generate significant profits from product and service sales. Similar to other high-growth U.S. companies, Meta does not offer dividends.
Source: Meta
Meta has recently had two noteworthy developments. The first one is the launch of Threads in July this year, a social platform similar to Twitter. Leveraging its user base on Instagram, Threads attracted one hundred million registered users within a few days of its release. As a result, analysts estimate that once Threads matures as a product, it could contribute 1-3% to earnings per share.
The second notable development occurred just a few days ago, on October 30th, when Meta introduced an ad-free subscription model for EU countries and Switzerland to comply with the EU’s General Data Protection Regulation (GDPR).
The author believes that this second development is more noteworthy, as it represents a novel business model that allows Meta to find a way to address the longstanding controversies over data privacy in the EU. This business model may be applied in other regions, bringing in new revenue for Meta.
META AND THE CRYPTO PLAN
Meta also attempted to expand its business to the crypto realm in recent years. 2019 Meta initiated the Diem cryptocurrency project, formerly known as Libra. However, in 2022, the company officially announced the sale of Diem to another fintech company, marking the end of Facebook’s cryptocurrency project.
As for NFTs, Meta’s product manager, Navdeep Singh, excitedly announced the launch of NFTs on Facebook and Instagram on June 30, 2022. Users could transfer NFTs to Meta’s platform through the Flow blockchain, Ethereum, or other NFT platforms.
However, in March of 2023, Facebook and Instagram both announced the discontinuation of NFT support but committed to improving other payment methods, such as Meta Pay, to enhance creators’ earnings.
WHY IS META AN EXCELLENT STOCK TO BUY?
- Social Media Leader- User Base Continues to Grow
Facebook and Instagram remain the dominant social media platforms worldwide, with their user base steadily growing each quarter, reaching 3 billion people in the second quarter of 2023. With such a massive scale, even as other platforms like TikTok and YouTube continue to expand, it’s challenging to challenge Meta’s leading position directly.
Source:Statista
- Introduction of the Subscription Model to Address European Privacy Concerns
Due to strict data privacy regulations in European Union countries, this has been problematic for Meta, as their primary revenue source is user-targeted advertising. However, with the subscription model they recently introduced, it appears that Meta can temporarily address concerns regarding improper data collection and utilization for advertising in Europe.
This approach allows Meta to establish a presence in the European market while generating profits, creating a win-win situation. Moreover, European privacy regulations have long been a concern for Meta investors, and this new solution provides greater confidence when investing in Meta.
WHAT SHOULD YOU CONSIDER WHEN BUYING META STOCK?
- Potential for Explosive Stock Growth May Be Limited
Firstly, Meta is already a highly scaled company. Like other large-scale companies, it is challenging to expect its stock price to double suddenly, especially given that Meta has rebounded to its previous levels from a prior downturn in 2023. Therefore, at this point, when considering investing in Meta, it’s essential to be mindful of the competitive price at which you enter.
- Losses in the Reality Lab
The other thing that should be careful is that the Meta Reality Lab division is currently operating at a loss. In 2022, the Reality Lab incurred over $10 billion in losses, while other divisions generated revenues exceeding $30 billion. As a result, it’s essential to monitor the ongoing performance of the Reality Lab.
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