Meta Platforms (META 0.50%), the world's largest social media company, has seen its shares soar nearly 660% over the past decade. That rally was driven by the rapid growth of its core apps (Facebook, Instagram, Messenger, and WhatsApp) and its surging ad revenues. It now shares a near-duopoly in the digital advertising market with Alphabet's (GOOG 0.17%) (GOOGL 0.11%) Google in many countries.
During the same decade, Alphabet's shares advanced just over 500%. Most of that growth was fueled by Google's search engine, YouTube, and its cloud platform. Those services -- along with its market-leading Chrome browser, Android mobile OS, Gmail, and other products -- fed plenty of data to its core advertising business.
Image source: Getty Images.
Yet Google remains an underdog in the cloud infrastructure race, and it failed to leverage its dominance of the search market to launch a lasting social media platform. It also faces some existential challenges: The rise of generative AI search engines like OpenAI's SearchGPT could disrupt its core search business, it faces antitrust probes in multiple markets, and the U.S. Department of Justice (DOJ) wants it to sell Chrome.
NASDAQ: META
Key Data Points
As of this writing, Meta has a market cap of $1.4 trillion while Alphabet is worth $2 trillion. So could the social media king eclipse the struggling search leader's valuation by the end of 2025? Let's dive deeper into these two "Magnificent Seven" stocks to decide.
Meta is growing faster than Alphabet
Meta and Alphabet focus on different markets, but they both still generate most of their revenue from digital ads. From 2018 to 2023, Meta's revenue grew at a compound annual growth rate (CAGR) of 19%, while Alphabet's revenue rose at a CAGR of 18%.
|
Metric |
2019 |
2020 |
2021 |
2022 |
2023 |
|---|---|---|---|---|---|
|
Meta Platforms revenue growth |
27% |
22% |
37% |
(1%) |
16% |
|
Alphabet revenue growth |
18% |
13% |
41% |
10% |
9% |
Data source: Company earnings reports.
In 2020, Meta and Alphabet both struggled with slower ad sales as the pandemic forced many businesses to reduce their marketing expenses. Alphabet partly offset that pressure with Google Cloud's growth. Both companies' ad businesses bounced back in 2021 as the pandemic headwinds waned and the macro environment stabilized.
In 2022, both companies generated slower sales growth upon lapping that recovery. However, Meta faced a tougher slowdown after Apple's iOS update allowed its users to opt-out of targeted ads from third-party apps. Stiff competition from ByteDance's TikTok in the short video market exacerbated that pressure.
In 2023, Meta's growth accelerated again as it countered Apple's changes with more AI-powered tools for harvesting first-party data, expanded Reels to keep up with TikTok, and attracted big ad purchases from Chinese e-commerce and gaming companies. Alphabet's growth cooled off again as Google's advertising business faced tougher macro and competitive challenges. YouTube's growth also slowed down.
Meta faces fewer near-term headwinds than Alphabet
From 2023 to 2026, analysts expect Meta's revenue to grow at a CAGR of 16%, and Meta's earnings per share (EPS) to grow at a CAGR of 25%. That growth should be driven by the ongoing expansion of Meta's family of apps, which served 3.29 billion daily active people in its latest quarter, and the rollout of new augmented and virtual reality products through its Reality Labs unit.
Meta's Reality Labs business is still unprofitable, but it's consistently offsetting those losses with the growth of its higher-margin advertising business. A potential ban or tighter restrictions for TikTok in the U.S. could potentially drive more users toward Reels. Meta also faces some antitrust pressure -- including a Federal Trade Commission lawsuit that targets its acquisitions of Instagram and WhatsApp -- but that trial is still in the early stages and not an immediate threat like the DOJ's call for Google to sell Chrome.
From 2023 to 2026, analysts expect Alphabet's revenue to rise at a CAGR of 12%, and its EPS to rise at a CAGR of 21%. That outlook assumes the macro environment will warm up, its ad and cloud sales will remain stable, and it won't be significantly disrupted by the generative AI and antitrust challenges. However, those estimates will likely be reduced if the DOJ successfully forces Google to divest Chrome's data-rich business.
Could Meta be more valuable than Alphabet in a year?
Alphabet trades at 19 times forward earnings, which makes it the cheapest Magnificent Seven stock. Meta is still the second cheapest with a forward multiple of 22. Assuming both companies match Wall Street's expectations and still trade at the same forward multiples by the end of 2025, Alphabet's market cap could rise 16% to $191 as Meta's stock climbs 15% to $642. That would boost Alphabet's market cap to $2.4 billion and Meta's market cap to $1.6 trillion.
If both stocks trade at 20 times forward earnings by the end of 2025, Alphabet would be worth $2.6 trillion while Meta would still have a market cap of about $1.4 trillion. So unless Alphabet's growth abruptly stalls out over the next few quarters, it seems unlikely that it will be less valuable than Meta by the end of 2025. That said, Meta's stronger growth and milder regulatory headwinds might still make it a better long-term buy than Alphabet.
