Meta Platforms (NASDAQ:META) stock is approaching its earnings release, and investors are divided on its potential direction.
While some expect a bullish surge, others caution against high expectations already being priced in. For long-term investors, it’s best to focus on the big picture rather than short-term gains.
Although the hype around META’s generative AI has been pushing the stock higher lately, its long-term prospects are far from certain.
The company is still in a nascent stage and could double from here. In this article, we will shed light on why Meta Platforms could still potentially double from here.
Recent META Updates and News
Meta adopted an open-source strategy for Threads, a Twitter-like service operated through Instagram. They built threads on ActivityPub, the same system used by Mastodon, a competing open-source platform.
Concerns about Threads’ declining traffic might impact Meta’s stock price in the short term.
The said Twitter clone achieved remarkable success with over 100 million users shortly after its launch. Despite this rapid growth, Meta has no immediate plans to monetize the app.
However, Threads could potentially outperform Reels, Meta’s TikTok clone, and become a significant source of revenue growth in the future.
Threads, as a separate app, won’t directly compete with Instagram and Facebook like Reels did. Instead, it targets Twitter users and aims to draw time away from Twitter.
Evidence suggests that Threads’ launch has led to a decline in Twitter traffic. As long as Threads doesn’t divert significant time from Facebook or Instagram, it can complement Meta’s app portfolio.
Meaningful Earnings Beats Provides Momentum
This past week, Meta released its second quarter earnings, which blew away analyst estimates. The stock rallied accordingly, hitting its highest level in roughly 18 months on the news.
Meta’s $2.98 of earnings per share were 11% higher, compared to the previous quarter the year prior. These results also beat analysts’ estimates, which called for earnings per share of only $2.91.
Similar results were seen on the top line, with revenue umping 11% to $32 billion, or roughly $900 million more than what the Street had the company pegged at producing.
Overall, most experts and pundits have pointed to Meta’s year of efficiency as already paying off. Improved profitability and cost control has led to break out numbers.
These results come as the company continues to spend heavily on its Reality Labs (metaverse) division. That division actually lost more than expected, but wasn’t a factor in spoiling the party for investors.
If Meta can continue to pump out incredible earnings beats for the next few quarters, I think a double-up within the next 12 to 24 months isn’t impossible.
In fact, given the company’s valuation multiples relative to its peers, such a move could certainly be in the cards. This is especially true if valuation expansion continues and investors transition back into equities in a big way in the coming quarters.
Is META a Buy?
Despite uncertainties around Meta’s upcoming earnings, it remains a strong long-term “buy and hold” opportunity. The company is poised for growth in 2023 and 2024, with the potential rebound in the digital ad market and opportunities from Reels and Threads.
Meta’s AI-based ad monetization provides further potential for earnings growth.
Threads is an exciting addition to Meta’s offerings, but it’s still early stages with uncertainties. Investors should look at Meta’s overall family of apps, not just Threads.
The stock has the potential for further growth, with analysts raising their earnings expectations and Ark Innovation ETF investing in it.
On the date of publication, Chris MacDonald has a LONG position in META. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.