MW Wall Street is hyper bullish on Meta's stock: 3 reasons why you should be, too

By Laila Maidan

Meta is trading like a value stock - but its ad revenue and AI prospects suggests investors should think about it as a growth bet

Wall Street is highly bullish on Meta Platform Inc.'s stock.

While analysts have been chopping their price targets for the stock, 88% of them remain at a buy or overweight rating, with an average price target of $727.92, according to a FactSet poll of 74 analysts. As of Wednesday's close, the stock was trading near $502.

It's no surprise: Meta $(META)$ is a cash machine with rich advertising revenue that stood at nearly $165 billion in 2024, up by 22% from the previous year. That's not considering its future growth potential in artificial intelligence.

But despite that opportunity, Meta's stock trades at a bargain relative to some of the other members of the "Magnificent Seven." And looking ahead, the company's future seems bright. Here's why.

A tenacious company

If you talk to enough portfolio managers, you'll start to notice that one of the most common reasons a stock is beloved is because of its management team. Investors wonder whether a leadership team has the ability to steer the company through tough economic times or innovate in the face of change. Over the past three years, Meta has proven its ability to do just that.

A few years ago, investors were worried about the trajectory of Meta's advertising business. Sales actually declined in 2022, after Apple Inc. $(AAPL)$ introduced an update allowing iPhone users to limit how marketers could track them. For Meta, that made ad-targeting challenging. Meanwhile, the company had been spending on the so-called metaverse, which didn't please investors.

The company's revenue was dropping while its cost profile was blowing up, causing margins to compress, said Morningstar equity analyst Malik Ahmed Khan. By the final quarter of 2022, the stock had plunged to levels near $90 a share, down from a peak of about $400.

Below is a bar chart from Macrotrends that shows several quarters of declines in year-over-year revenue growth, until it rebounded in the March quarter of 2023.

Meta eventually figured out its ad issue: It turned to probabilistic ad targeting, which uses different signals to approximate information about a user's preferences. And the company got really good at it, which allowed revenue to recover, said Khan.

Wall Street's perspective

Meta has recovered to a point where Wall Street finds its fundamentals attractive relative to where the stock is trading. While analysts typically do a deep dive into a company's financials, individual investors can look at a few valuation metrics to help them understand how the stock could fare.

Meta's forward price-to-earnings ratio - how much an investor would pay per dollar the company earns - is at about 21, which suggests it's undervalued, Khan noted. That's because the company's growth profile matches that of an artificial-intelligence stock, which can trade at huge multiples. For example, Tesla Inc.'s stock $(TSLA)$ has a forward P/E of 96, and Microsoft Corp.'s $(MSFT)$ has a P/E of 27.

Meanwhile, Meta has been holding a solid leadership role in the AI race. On April 5, it released its large language model Llama 4, which rivals Google's Gemini 2.0 Flash and beats OpenAI's GPT-4o on things like reasoning, math and coding, according to benchmark performance metrics released by Meta. Its cost to run queries per 1 million tokens is between 19 cents and 49 cents, about as cheap as DeepSeek's at 48 cents, and substantially cheaper than ChatGPT at $4.38. Some of Llama's previous versions are also open weights, which allows for a degree of adjustability by third parties.

Angelo Zino, a technology equity analyst at CFRA, expects the developments in Llama to become monetizable in 2026 and 2027 through paid enterprise accounts. He noted that most of Meta's AI strength has thus far been leveraging the technology to improve user engagement and ad tools.

There's also an additional valuation metric Khan suggests using to compare Meta's stock to its internet peers, which is its enterprise value relative to its earnings before interest, taxes, depreciation and amortization or EV/Ebitda. This way, investors can see how Meta stacks up next to its smaller internet peers that may not have enough earnings for a decent P/E. For example, Meta's ratio stands at 11.9, a low, healthy ratio relative to rivals. Snap Inc. (SNAP) is at about 37, Pinterest Inc. $(PINS)$ is at about 13 and Reddit Inc. (RDDT) is at about 27.

Solid ad revenue

Meta houses Facebook, Instagram and WhatsApp, but the company isn't transparent about how much revenue those businesses generate individually. That's why analysts turn to third-party data providers to try to guesstimate the breakdown.

For example, Instagram, which Meta acquired in 2012, has been growing its average revenue generated per user from an estimated $24 in 2020 to about $37 in 2024, according to data from eMarketer and Morningstar estimates. Based on the same data source, Instagram went from making up about 30% of Meta's ad revenue in 2020 to almost 35% in 2024.

The bar chart below from Morningstar uses eMarketer data to break down the dollar value of Instagram's ad revenue. It shows a gradual climb over the years as Instagram's ad revenue approached nearly $60 billion in 2024.

Caveats

When investors choose to gain exposure to an individual stock over, say, an index fund, there's nothing passive about it. And so a positive thesis is only the start. Investors should also keep an eye on developments that could cause a positive outlook to turn negative, and for Meta, there are a few.

Tariffs and a recession?

Meta's direct costs from tariffs are likely low. The tech giant doesn't sell much in hardware, other than virtual-reality headsets and AI glasses, a small and insignificant part of its business, Khan noted.

The real impact would be a cutback in ad spending, especially from overseas brands that advertise to U.S. consumers. PDD Holdings Inc. $(PDD)$, which owns Chinese e-commerce site Temu, may have been one of Meta's biggest spenders, buying ads worth $2 billion in 2023, according to reports by the Wall Street Journal. A spokesperson for the company denied that number, according to the Journal. Still, the retailer is one of many, along with Shein, that may limit their bids on ad spending, especially after the Trump administration ended the "de minimis" exemption on April 2. This previously allowed imports from China worth less than $800 to avoid tariffs.

As for U.S.-based retailers, they might cut back too if they feel the rising cost of imports or see consumer behaviors shift.

"That still obscures the actual impact because it's an auction market," Khan said. "So, if you bid up the auction price and I was going to buy ads on that anyway, I'm going to spend more as well. What the Chinese retailers have done is they've not only bought Meta ads, but they've raised the price for everyone else."

In other words, what Meta has been charging for ad space could go down as a result.

Then there's the looming risk of a recession, as a downturn could cause companies to further pull back on ad spending. When Gil Luria, the head of technology research at D.A. Davidson, dropped his price target on Meta's stock to $650 from $800, he mentioned macroeconomic risks, mainly expectations of negative GDP growth for the year. And advertising is very sensitive to consumer spending, so if the global economy weakens, expect significant cuts to ad spending.

"We think it is now inevitable that we are going to have a slowdown in the U.S., probably one, maybe two quarters of negative GDP," Luria said. "And therefore, it makes sense to reduce estimates in price targets for all of the companies in our coverage."

An antitrust case

Meta has been making headlines this week as it faces off with the U.S. Federal Trade Commission in an antitrust case. The government accuses Meta of monopolizing the social-networking space.

While not the most likely outcome, Meta risks having to divest its Instagram and/or WhatsApp businesses in an adverse ruling.

More: Meta could get broken up in an antitrust case. Why that may be good for its stock.

Depending on how Meta reacted to such a scenario, shareholders would either get shares of the spinoff companies, or benefit as the company pocketed the cash from sale of its subsidiaries. But they would lose the synergies that come from having those businesses all under one umbrella, and the overhang of the case could cause volatility over the next few weeks.

Competition from TikTok

TikTok is probably Meta's major competitor, especially as users increasingly spend more time on the video-sharing platform. So on a longer time horizon, investors will need to keep an eye on shifts in user preferences around social-media apps. TikTok risks a U.S. ban but it most recently received a 75-day extension on April 4.

"The potential for TikTok going away as a competitor is now very reduced," Luria said. "It looks like we're headed toward a deal that will keep TikTok."

The bar graph below shows daily time spent per platform across social-networking platforms, based on data from eMarketer and estimates from Morningstar. It shows a gradual decrease in time spent on Facebook but an uptick for time spent on Instagram and TikTok.

-Laila Maidan

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April 17, 2025 07:30 ET (11:30 GMT)

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