Meta Platforms (NDQ:META): With 3bn+ users, is it the dark horse in the rapid AI race? And can we trust it after the VR and metaverse flops?

Let’s look at Meta Platforms (NDQ:META), a company that changed its name in 2021 thinking that the metaverse would be as big as the Internet. Well, there’s some way to go there. Same with virtual reality.

 

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But if there’s another 3bn+ social network, let’s hear about it. Facebook may have ‘lost its gloss’ post the Cambridge Analytica scandal, but still boasts such a high usage. Plus, the company has Instagram and WhatsApp too.

The reason we’re looking at the company behind Facebook now, is it maybe ‘it’s different this time’? What’s different? Well, maybe this time it actually could be on to something in the form of the AI boom. And with shares at a record high, maybe investors think this time is different.

 

Recap of Meta Platforms (NDQ:META)

Meta began from Facebook which Zuckerberg, then a student at Harvard, began in 2004 to connect people on his campus with one another. It quickly grew to other campuses and then became available to non-students too. Facebook was not the ‘first mover’, MySpace was. But unlike MySpace, Facebook had a simplified interface and required people to use their real names (at least in theory).

How could it make money if users didn’t pay for it? Ads. But not ads like ads you would see on TV aimed at mass audiences for whom you’re just taking a ‘swing at the fence’ that it will be relevant for at least some of them. You can go to Facebook and ask them to show ads at specifically people you want to see ads for.

If you’re Qantas wanting to sell tickets on your flights to Dallas, you can get Facebook to show ads specifically at people who’ve been searching – not just on Facebook but all over the web. And yes, it can track your activity off Facebook. If you’re a sporting team wanting fans to become members, you can get Facebook to show ads at people who post about the team all the time. Do you see the point we’re trying to make here?

The Cambridge Analytica scandal saw the company’s reputation take a hit.  Only then did people realise this model. They thought they knew what they were signing up for, but they didn’t read the very small fine print.

 

Facebook’s forays: The good and the not so good

In 2012, Zuckerberg saw Instagram was a potential threat, given it was growing fast, and decided to buy it for US$1bn. People mocked and derided him at the time as no one had ever paid that much for an app like that, at least not one with less than 20 employees. But no one is mocking him now – Instagram was worth $100bn within 6 years.

Then in 2014, Zuckerberg bought WhatsApp for $19bn – well, actually it was $22bn in the end given the Facebook shares promised inflated in price between when the deal was announced and closed. Despite generating minimal revenues, it had hundreds of millions of users who were using it so often (given it was a secure and cheap alternative to texting) and Facebook saw the opportunity in it. Only now is Facebook taking measures to realise revenues from it…more on them shortly.

Other forays haven’t been as successful. Facebook saw VR as something with potential and have developed VR headsets. In 2021, it changed its name to Meta all because it thought the metaverse would be a thing. So far it isn’t. But Facebook just might be the company to benefit the most from AI.

Now yes, you may doubt this because of Facebook’s flops with VR and the metaverse. And you may think ‘Meta AI’ that you get annoyed with isn’t anything at all…but that’s just the start.

 

Meta set to gain from AI, and other monetisation measures

Yes, it will. The race is only in its early days but it spending US$72bn this calendar year alone. The company’s first moves have been Meta AI and with US$299 Ray-Ban sunglasses. Give a Hey Meta prompt, and with AI, they can take photos, record videos, answer queries and identify objects. They cannot yet identify people, but Meta plans for this to happen.

Last week, Zuckerberg announced a new group called Meta Superintelligence Labs to lead Meta’s AI efforts. Zuckerberg said he believed it would be ‘the beginning of a new era for humanity,’ and,’ I am fully committed to doing what it takes for Meta to lead the way’. IT invested US$14.3bn in Scale AI and hired Alexandr Wang, the former CEO of that data-labelling startup as the boss of the group.

Remember what we said earlier about how WhatsApp would be monetised? Well, it’ll soon start showing ads in the Updates tab, which will be used by 1.5bn people per day. It will also introduce paid monthly subscriptions for content creators, and let users and businesses advertise their channels – one way broadcasts that’ll be sent to large groups of people.

 

Investors and analysts are confident in Meta

Meta’s shares are at a record high, at over US$700 per share or US$1.9tn. They are up 46% in the last year and over 200% in the last 5 years. Consider that Meta listed at US$38 per share at its IPO, meaning a US$10,000 investment would be worth nearly US$200,000 now.

Meta made US$164.5bn in CY24 and analysts expect it to make US$187.7bn in CY25, US$213.4bn in CY26 and US$238.5bn in CY27. The company made US$23.86 EPS in CY24, representing a US$62.4bn profit – a 60% increase from CY23. Investors expect US$64.7bn in CY25, then US$71.4bn in CY26 and $81.6bn in CY27.

These estimates place Meta at 28.7x P/E and 1.7x PEG for CY25, then 25.7x P/E and 1.5x PEG for CY26.

 

Conclusion

The decision as to whether or not you buy Meta depends on its place in the AI race. Same goes for any company, you need to think about the impact AI will have on it. But the company behind Facebook, while potentially vulnerable to competitors, is seeking to be a leader in the AI race. Of course, everyone (investors and non-investors) will watch what the company will do.

 

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