After the initial excitement surrounding Meta’s Threads, the addition of new users has slowed down. However, recent controversies surrounding Twitter, now known as X, are likely to benefit Meta significantly. Elon Musk’s use of expletives when referring to advertisers who have canceled their advertising on X will likely prompt other advertisers to reconsider their decision to spend on ads within X. Big spenders like Disney and Comcast have already increased spending on Instagram after dropping ads from X. It is challenging to sustain a social network, and it requires a more low-key public profile from top management. X may transition into a more subscription-based platform, with most ad business moving to Meta. Changes in the placement of Threads will allow for more visibility, leading to greater customer engagement within Threads by the end of 2025. The success of Meta in Threads and Reels demonstrates the company’s long-term potential. Despite a massive bull run in 2023, Meta is still trading at a discount compared to Apple and other big tech companies, indicating significant long-term potential.
The recent statements made by Elon Musk have significantly impacted the X platform. While the full repercussions are not yet visible, we can expect to see a gradual shift of ad dollars from Twitter to other platforms. Meta is an attractive option for advertisers due to its stability and management’s experience in handling controversial content. Meta has also made changes to Threads to increase its visibility, making it more appealing to advertisers. Although Meta has faced its own content moderation issues, the company continues to make improvements in removing toxic content. The growth of AI will further assist Meta in removing unsuitable content.
Meta has experienced a significant increase in ad impressions delivered on its platform in recent quarters. The third quarter of 2023 saw Meta’s ad impressions increase by 31%, while the average price per ad decreased by 6% year over year. However, over time, Meta is expected to benefit from higher ad impressions and deliver a better average price per ad. The time spent by users on Meta’s platform is a crucial metric indicating the company’s future growth potential. Meta has already made progress against TikTok with its Reels platform, and regulatory and legislative headwinds for TikTok will likely drive more customers toward Meta. The recent issues with Twitter will also improve user engagement on Meta’s platform.
Meta’s lower valuation multiple compared to tech majors like Apple and Microsoft is due to the nature of its earnings, primarily derived from advertising. Meta’s dependence on other platforms, as demonstrated by the headwind caused by Apple’s privacy policies, reduces the security of its revenue and earnings base. However, the success of Threads will change this narrative, increasing the time spent on Meta’s platform and showcasing Meta’s ability to replicate other social platforms and generate new revenue streams. This strengthens Meta’s long-term runway and reduces revenue volatility.
Meta’s stock has experienced a significant increase this year, but its forward PE multiple indicates it is still undervalued compared to Apple and Microsoft. Meta is also showing faster year-over-year revenue growth. The recent stumbles of Twitter will benefit Meta, and a majority of advertisers are likely to shift from Twitter to Meta. Meta’s stock remains a good investment considering recent developments in the social media landscape and the company’s current valuation.
In summary, Meta is poised to benefit from advertisers moving away from Twitter, with Elon Musk’s actions indicating a potential shift to a subscription-based platform. The increased visibility of Threads and Meta’s strong revenue growth in recent quarters position the company for success. Despite trading at a discount compared to Apple, Meta’s faster revenue growth and potential for increased ads on Reels make it an attractive investment.
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