Stock-Split Watch: Are Meta Platforms Next?

Actions of Meta platforms (META 1.39%) have enjoyed a remarkable market performance over the past year, rising 85% on the back of impressive growth in its revenue and earnings. There’s a good chance the tech giant’s stock could continue to rise thanks to the strength of the digital ad market, where it appears to be gaining more share.

For equity investors who do not have access to fractional share purchases, this rise in the Meta price has created a problem. Each share is now trading just a shade below $585. To address higher share prices, all of the Meta Magnificent Seven have conducted stock splits in the recent past.

Will the social media giant join this group to help interested retail investors? Let’s find out.

Will a stock split matter?

Meta Platforms is the only company among the Magnificent Seven that has never executed a stock split. The company went public at just over $38 per share in May 2012 and has since delivered huge returns to investors.

It is worth noting that a stock split is nothing more than a cosmetic move that does not change the fundamental value of a company. It simply increases the number of shares outstanding by reducing the price of each share. The market capitalization does not change. Of course, companies executing a stock split point out that the reduced price of each share following the move will allow a larger group of investors to buy the stock, thereby helping demand for their stock. Lower stock prices also give Meta employees more control over how they manage their stock compensation options.

If you’re an investor with access to fractional shares, a split doesn’t mean much, and you can invest in the company with whatever available funds you have. More importantly, now would be a good time to buy Meta Platforms stock indifferent of a split. Let’s look at the reasons.

Meta Platforms looks like an attractive buy right now

Even though Meta stock has gained impressively over the past year, it trades at 29.8 times earnings. This is a small discount to Nasdaq-100 index earnings multiple of 31.7 (using the index as a proxy for technology stocks). The Meta’s forward earnings multiple of 27.4 points to good earnings growth for the company and is a solid discount to the Nasdaq-100’s forward earnings multiple of 30.

Investors looking to add a tech stock to their portfolios will get a good deal on Meta Platforms stock right now. This is because Meta’s growing market share in digital advertising drives robust financial growth.

The company reported revenue of $75.5 billion in the first six months of 2024, a 25% increase over the same period last year. Its earnings grew at a much stronger rate of 90% over the same period, to $9.86 per share. Analysts expect Meta to exit 2024 with nearly $162 billion in revenue, which would be a 20% increase from last year. Earnings, meanwhile, are expected to rise 43% to $21.29 per share.

The bright side is that Meta is projected to see double-digit growth over the next two years as well.

META EPS estimates for next fiscal year data by YCharts

To put things into perspective, the global digital ad market will grow 12.2% this year, 11.4% in 2025 and 10.4% in 2026, according to eMarketer. Meta’s projected growth for all three years means it will outperform the market in which it operates. The company used artificial intelligence (AI) tools to recommend more relevant content to users to improve engagement and ad performance.

CFO Susan Li noted on the company’s recent earnings conference call that its AI tools “continue to unlock performance gains, with a study this year showing a 22% higher return on ad spend for US advertisers after have adopted Advantage+ campaigns for Shopping”.

The improved returns Meta offers to advertisers explains why it was able to deliver a 10% year-over-year increase in average cost per ad in the second quarter. The company also reported a 10% increase in the number of ads delivered. Moreover, a strong daily active user base of 3.27 billion means that Meta has a wide reach and is able to get more money from advertisers by giving them AI tools to leverage their huge base of users.

Meta Platforms stock looks poised for more growth even after impressive gains over the past year. Assuming its earnings reach $28.17 per share in 2026 and trade at 30 times forward earnings at that time (in line with the Nasdaq-100’s forward earnings multiple), its stock price could rise to $845. This would be a 44% increase from current levels.

So investors are getting a good deal with this tech stock and may not want to miss out on it given Meta’s growing share in the digital advertising space and its application of AI to make a deeper in this market.