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Prediction: Meta's Recent Rise Will Continue Through 2025. Here Are 3 Reasons Why

Chris MacDonald

Published: December 20, 2024 1:07 pm

Meta Platforms (NASDAQ:META) has become one of the most important stocks for millions of investor portfolios out there, due simply to this company’s weighting in many index funds and active strategies. The company’s status as a leading social media giant is certainly noted among existing investors, with the company’s Facebook, Instagram, WhatsApp and other platforms driving the vast majority of the company’s revenue and earnings growth over the better part of the past two decades.

Key Points About This Article:

• Meta Platforms remains among the leading tech stocks in the market long-term investors have done well owning over the past two decades.
• Here’s why this trend is likely to continue into 2025, and where the social media giant could be headed from here.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

That’s going to continue. But it’s Meta’s increasing focus on its artificial intelligence, virtual reality and metaverse capabilities that has some investors excited about where this company is headed. In short, Meta looks like a legacy tech company that’s attempting to turn the page to a certain degree on where it’s focusing its time and attention, while still driving plenty of earnings growth over time due to the sheer number of eyeballs (3.3 billion daily active users) across its platforms.

The company’s $150 billion ad revenue number is incredible, as is its cash flow growth rate. Over the past 12 months alone, Meta has generated $52 billion in free cash flow (right around where it’s net income is), so despite a market capitalization of more than $1.5 trillion, this is a still a company with a relatively decent free cash flow yield, at around 3.5%.

Here’s why I think the company could continue to rise through 2025, and why this high-momentum stock is one investors may want to hold for the long-term.

Strong Financial Performance

It’s worth noting that Meta is a tech company that’s certainly faced its fair share of challenges in 2022. The company’s revenue actually declined 1% and its operating margin dropped from 40% in 2021 to just 25% in 2022, leading some investors to throw in the towel on what appeared to be a “has been” growth stock, at least among the major names on the NASDAQ.

That said, following the 64% decline some investors experienced in 2022, Meta has been on a tear since. Over the past year, the company has posted 22% revenue growth and a 43% operating margin (above 2021 levels), leading some to call for continued fundamental improvement in 2025. The company’s management demonstrated confidence by initiating its first-ever dividend of $0.50 per share in June, supported by $15.5 billion in free cash flow. Two years ago, Meta’s price-earnings ratio of 10.6-time made it a clear bargain, given the stock’s substantial growth since. However, with META stock now trading at a forward price-earnings ratio of more than 26-times, the question is whether this rally can continue from a fundamentals perspective. 

I think that certainly could be the case, so long as the company’s focused on increased efficiency (ramped down spending on its metaverse ambitions and increased spending on margin-producing parts of the business such as its AI integrations) continues. While Meta’s capital expenditures remain high, most of this spending is clearly focused on the company’s AI ambitions, and the market is rewarding this stock. I think this is likely to remain the reality, so long as advertising metrics continue to show growth and AI can be pointed to as a key driver of this growth.

Advancements In Artificial Intelligence

As mentioned, AI remains a key driver for Meta’s stock price performance, and I think this will continue to be the case in 2025. However, it’s worth noting that Meta began its AI research over a decade ago, evolving from facial recognition to machine learning, virtual reality, and now its Llama language model, currently at version 3.2. In other words, Meta is a company that’s well-versed in how to not only develop and curate its AI applications, but integrate them within its infrastructure to deliver stronger results. 

I think the company’s Llama model as well as its chatbot which is being integrated across Facebook, Instagram, WhatsApp, and Messenger could drive additional eyeballs over time. But more importantly, these technologies could drive enhanced user activity metrics, which could help the company improve on its already very strong advertising metrics (revenue, earnings and margin growth). 

The company is continuing to leverage AI to boost user engagement and advertising performance in 2024. AI-driven recommendations increased time spent on Facebook and Instagram by 8% and 6%, respectively, while ad impressions rose 7% and average ad pricing grew 11%. 

So long as these are the sorts of metrics the company can put forward, I’m bullish on where this stock can be headed over the next year.

Increased User Engagement Across Platforms

User engagement is a key metric for social media platforms, shaping user retention and revenue by attracting advertisers. Platforms continuously innovate, using AI personalization and community-focused features to boost interaction. Competition coming from the likes of TikTok will continue. But Meta has shown its ability to innovate with Instagram Reels and YouTube Shorts, highlighting the company’s innovation and platform evolution abilities. 

Meta’s engagement remains strong, with 3.29 billion daily active users across Meta’s family of apps. These are strong numbers. But the company has continued to show improving user engagement metrics (not only more eyeballs, but more engaged eyeballs), allowing the company to have such robust pricing power which has led to stronger metrics across the board. It’s also worth noting that Meta’s new social media product, Threads, has attracted 275 million monthly users. While growth has slowed here, it’s another potential driver for investors to at least keep an eye on.

Meta Still Looks Like a Strong Buy

Despite Meta’s strong performance this year and last (let’s not talk about 2022), the company’s valuation still appears to be reasonable to me. Trading at around 26-times forward earnings, there are plenty of other growth stocks trading at much richer multiples I’d argue don’t have the sort of fundamental basis for long-term earnings and cash flow growth as Meta.

At the end of the day, that’s what it comes down to for me. I think Meta can continue to grow its cash flow considerably in 2025, improving its cash flow margin toward 5% even with meaningful share price appreciation. And if the market continues to assign a similar multiple to this stock, there’s potential for even more upside (perhaps a repeat of 2024 or something close to this performance).

We’ll have to see. But for now, Meta remains a fundamental story in my view. So, as long as the fundamentals continue to improve, this is a stock I think investors will kick themselves for not owning in 2025.