Will Meta Platforms Be a $2 Trillion Stock by 2030?

Shares of Meta Platforms (META 0.84%) are up 148% so far this year on investor enthusiasm about solid improvements in its revenue and earnings. That should come as a big relief for long-term investors, given that the social media giant got clobbered last year and dropped close to 65%.

But if you are a potential new investor who missed out on Meta's terrific surge and is still waiting on the sidelines, it would be a good idea to take a closer look at this company's financials. Meta's primary growth driver at the moment could send its market cap soaring in the long run. 

Meta Platforms is close to joining the trillion-dollar club

Meta Platforms has a market cap of $769 billion, which means it needs to elevate its stock price another 30% to join the trillion-dollar club. The stock's median price target of $377.50 suggests that analysts think it could jump 26% in the coming year, putting it closer to the $1 trillion mark. The company's long-term prospects suggest that Meta will have no problem exceeding that mark by 2030.

Meta can sustain its solid levels of growth long-term because of the tremendous opportunity in the digital advertisement market. According to a third-party research report, the digital ad market is forecast to nearly triple to $1.5 trillion in 2030 as compared to $531 billion last year. That would translate into a compound annual growth rate (CAGR) of 14% through the end of the decade.

Meta Platforms generated $113.6 billion in advertising revenue last year, which means it controlled just over 21% of the digital ad space (based on the overall market's estimated 2022 revenue). This solid share puts the company in a nice position to take advantage of the digital ad market's secular growth.

It is worth noting that 2022 was a down year for Meta's business as its advertising revenue fell slightly from 2021. But the company regained its mojo this year and delivered $59.6 billion in advertising revenue in the first half of 2023, an 8% increase over the prior year.

More importantly, Meta's third-quarter revenue forecast of $33.25 billion points toward a 20% jump over the year-ago quarter. For the full year, analysts anticipate a 14% increase in revenue to $132.6 billion. Since advertising produced 97% of Meta's revenue last year, it is clear that the digital ad business is going to play a central role in driving the company's overall growth.

Additionally, Meta's top line is expected to grow by double-digit percentages over the next couple of years as well.

Source: YCharts.

The good part is that Meta is taking steps to ensure that it continues to remain a key player in the digital ad market by relying on technologies such as artificial intelligence (AI). The tech giant has been integrating AI into its offerings for a long time, and the good part is that its moves led to an improvement in user engagement.

Meta CEO Mark Zuckerberg remarked on the company's July earnings call:

This quarter, we saw a more than 30% increase in the time that people spent engaging with Reels across Facebook and Instagram. AI advances are driving a lot of these improvements. And one example is that after launching a new large AI model for recommendations, we saw a 15% increase in watch time in the Reels video player on Facebook alone. So, I think that there are many improvements like this that we're going to be able to continue to make.

All this indicates that Meta is pulling the right strings to drive long-term growth in the ad business over the long run. It helps that the company has access to a monthly active user base of 3.9 billion across its applications, such as Facebook and Instagram, which will allow it to attract more advertising dollars by deploying AI and helping drive stronger returns for advertisers.

A $2 trillion valuation seems achievable

We have seen that Meta controlled 21% of the digital ad market last year. A similar market share in 2030 would send its top line to $315 billion (based on the $1.5 trillion revenue that the digital ad market is expected to generate at that time). Meta stock currently trades at 6.6 times sales, a small discount to its five-year average price-to-sales ratio of 7.6.

Assuming it maintains its current sales multiple in 2030, Meta's market cap could jump to just over $2 trillion if it can hit $315 billion in annual revenue. Given that Meta currently trades at a cheaper sales multiple than its five-year average and its forward earnings multiple of 23.7 represents a discount to the Nasdaq-100 index's forward earnings of 27, it isn't too late for investors to buy this tech giant that could join the $2 trillion club by 2030.