"AI-driven ad revenue improvements will be the key driver for the stock. The firm has new inventory (WhatsApp statuses, Threads) for ads, and increasing ad loads on popular apps like Instagram should help support double-digit growth. The bigger concern for investors may be the capital expenditure commentary for 2026, as it is slated to grow aggressively. Unlike Amazon, Microsoft, and Alphabet, Meta does not have a cloud division to directly monetize its AI investments, and investors are increasingly concerned around the firm's AI strategy."
"With its 3-star rating, we believe Meta's stock is fairly valued compared with our long-term fair value estimate of $850 per share, which implies a 2025 adjusted price/earnings multiple of 31 times and an enterprise value/adjusted EBITDA multiple of 16 times. We forecast Meta's sales growing at a 14% compound annual growth rate for the next five years, spearheaded primarily by an increase in average revenue per user, with user growth also chipping in."
Meta will release third-quarter 2025 earnings on Oct. 29 after the close of trading. AI-driven ad revenue improvements and new ad inventory such as WhatsApp statuses and Threads are expected to drive double-digit growth, aided by higher ad loads on Instagram. Investors face concern over aggressive capital expenditure plans for 2026 and Meta's limited ability to directly monetize AI investments without a cloud division. The stock has a three-star rating and a long-term fair value estimate of $850 per share, implying a 2025 adjusted P/E of 31x and an EV/adjusted EBITDA multiple of 16x. Sales are forecast to grow at a 14% CAGR over five years, driven primarily by higher average revenue per user and some user growth. The Family of Apps benefits from a wide economic moat due to intangible assets and network effects, while Reality Labs continues to incur significant losses. The firm ended fiscal 2024 with $78 billion in cash and equivalents versus $29 billion in debt, reflecting a strong financial position.
Read at www.morningstar.com
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