In mid-2021, the stock of Meta Platforms (META 8.49%) (then Facebook) surpassed an impressive milestone: The company became the fifth U.S. business to surpass a market cap of $1 trillion. Just months later, the onset of the downturn sent the stock tumbling, eventually erasing more than three-quarters of its value.
After that mighty fall from grace, Meta stock appears to be on the road to recovery, and investors have taken notice. Many are beginning to ask the inevitable question: Does Meta have what it takes to rejoin the vaunted 13-digit club, and achieve that lofty watermark in less than two years?
Let's look at what's been weighing on Meta Platforms stock and the likelihood the company will regain its former glory.
Image source: Getty Images.
A stagnant ad market
It's well documented that macroeconomic headwinds force companies to batten down the hatches and ride out the storm. In a bid to cut spending, many businesses slash advertising, as it's one of the few areas in the budget that can be reined in and ramped back up quickly -- and without serious long-term repercussions.
As the world's second-largest digital advertiser (behind Alphabet) -- with an estimated 20% of the market -- Meta Platforms was hit hard by the wholesale slashing of ad budgets. And history provides compelling evidence that the company's current misfortune is largely the result of current conditions. As recently as 2021, Meta grew revenue by 37% and earnings per share by 36%. So the current economy is largely the cause of its challenges.
A victim of bad timing
It's worth noting that at least some of Meta's problems are self-inflicted. Over the past couple of years, the company went on a hiring spree, believing that its pandemic-related growth spurt would continue. The workforce ballooned, nearly doubling from 44,942 in 2019 to 87,314 by the third quarter of 2022.
That strategy turned out to be a costly miscalculation. When the downturn hit, the bloated head count became an anchor weighing on Meta's results. CEO Mark Zuckerberg issued a rare mea culpa, calling the events of the past year "a humbling wake-up call."
Since then, however, it has been working to become a slimmer, more nimble company. Management has slashed 11,000 jobs -- or roughly 13% of its total head count -- since November. More recently, it announced plans to cull another 10,000 positions while not filling an additional 5,000 job vacancies. The company has also been reprioritizing spending, eliminating low-priority projects, and reducing its real estate footprint.
If we accept that most of Meta's troubles are the result of the current economy, then the eventual rebound will bring prosperity. The recent spending cuts, coupled with a rebounding ad market, will help position it for future success.
It's important to remember that even in the face of headwinds, Meta Platforms has an unrivaled network effect. During the fourth quarter, 3.74 billion people logged into one of the company's social media platforms every month, while 2.96 billion dropped by daily. When the advertising dollars begin to flow again -- and they will -- advertisers will follow the audiences, something Meta has in droves.
Will Meta Platforms be a trillion-dollar company by 2025?
Meta Platforms has been on fire recently, soaring 76% so far this year. Yet for all its potential, the stock is still remarkably cheap, currently selling for 4 times next year's sales. Plus, Wall Street is increasingly bullish on its prospects, with four upgrades and 20 price-target increases for the stock in the past month alone.
Evercore analyst Mark Mahaney is the most bullish among his Wall Street peers, slapping a $305 price target and an outperform (buy) rating on Meta shares. This represents potential gains of 44% over the coming year compared to Wednesday's closing price.
If the stock reaches $305 over the coming year, that would push Meta's market cap to nearly $791 billion, putting it within striking distance of $1 trillion.
What's more, given the stock's compound annual growth rate of 23% over the past 10 years, if Meta Platforms continues along its historical trajectory, it has a shot at crossing the trillion-dollar threshold by 2025.
