Facebook, now known as Meta, was founded in 2004 by Mark Zuckerberg. Facebook was originally intended as a networking platform for university students, but it quickly grew into a global social media giant that today has 2.9 billion active users. In other words, it is the world’s most popular social media platform.
Transformation into a virtual reality pioneer
Over the years, Facebook has expanded into a diverse social media ecosystem, including services such as Instagram, WhatsApp, and Oculus VR. In 2021, the company announced it was changing its name to Meta Platforms, Inc., reflecting its expansion into building virtual reality and the metaverse. Meta has ambitious goals to shape the future landscape of social media and virtual interaction—blurring the interface of reality.
As one might guess, Facebook’s main sources of income are advertising revenues. It offers advertisers various advertising opportunities across its platforms, such as Facebook, Instagram, and WhatsApp. These ads are targeted based on users’ interests and demographic data, making them effective and attractive to advertisers. In addition, Facebook also has other revenue streams, such as paid services and an app store.
Competitive Landscape
However, despite its position as market leader, Meta is by no means alone in raking in advertising revenue, and although Facebook has managed to maintain its popularity among users for two decades, new competitors such as TikTok have emerged. Its main competitors can be divided into four different categories:
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Social media: Competition is particularly fierce with other major technology companies such as Google (YouTube), Twitter, Snap Inc. (Snapchat), and TikTok, which offer their own social media platforms and advertising products. How long can the same platforms maintain the popularity of billions of users decade after decade, or will some platforms inevitably wither away?
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Virtual reality companies: Meta also competes in the virtual reality market with companies such as Apple (Vision Pro), Sony (PlayStation VR), HTC (Vive), and Valve (SteamVR). Its Oculus brand provides hardware and platforms for creating virtual reality experiences. Among the aforementioned, Apple in particular has begun to seriously challenge Meta in the virtual reality market with its Vision Pro VR headset. However, Mark Zuckerberg gave it a total thumbs down when he tested Apple’s Vision Pro headset in February: “After using the Vision Pro, I don’t just think Quest is the better value. I think that Quest is the better product, period.” However, sales of Oculus Quest products are still low.
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Messaging apps: Messaging apps like WhatsApp compete for users’ attention and are an integral part of Meta. Competition in this area is particularly focused on user numbers and data security.
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Content platforms: People’s available free time is limited, and Meta is competing for this free time with the likes of Netflix, Amazon Prime Video, and Apple TV+. Should I watch a series on Netflix tonight that just left me on a cliffhanger, or should I open Facebook or Instagram on my phone and scroll through an ad-filled feed? These small daily choices guide people’s consumption behavior and thus the revenue streams of technology giants.
How then does Meta strive to maintain its position in such a competitive field? Meta constantly seeks to find new innovations and technologies to invest in, such as virtual reality and the metaverse. The company also aims to strengthen user engagement and create communities through its platforms. Additionally, it leverages its strong advertising platform and user data to attract advertisers.
Stunning Growth
Since 2009, Meta has grown its revenue from $777 million to a staggering $135 billion, representing an annualized growth of approximately +41%. Based on last year’s results, the 10-year annualized earnings per share (EPS) growth is also nearly +39%. It is no wonder that with these figures, the company has grown to its current scale and taken its place alongside the US tech giants.
Valuation
Meta was among the first five US companies to hit a $1 trillion market capitalization in 2021. This celebration did not last long, however, as the stock soon plummeted by as much as 77% from its ATH (All-Time High) levels by the end of 2022. The company did not stay down, however, but initiated cost-cutting measures while managing to turn advertising sales back onto a growth path. This was rewarded with an almost +200% rise last year, trailing only Nvidia’s AI-hype-fueled +250% “moon mission” among S&P 500 companies.
Calculated using last year’s realized earnings, the stock is currently trading at a P/E of 23.8x, which is quite close to Meta’s average over recent years. By this metric, it is not particularly expensive, but not cheap either.
Investors were apparently spooked by the CFO’s comments on wanting Meta to be the world’s leading AI firm, which in turn means accelerating investments.
