There's been a resurgence in the popularity of stock splits in recent years. The practice was fairly common during the late 1990s before fading into obscurity, only to come roaring back to life over the past several years. Companies will normally embark on a stock split as the result of years of robust growth and consistently strong financial results that drive a soaring stock price.
This year is littered with prime examples:
- Nvidia executed a 10-for-1 split, payable June 7, 2024.
- Chipotle announced a 50-for-1 split, payable June 25, 2024.
- Broadcom delivered a 10-for-1 split, payable July 12, 2024.
- Super Micro Computer executed a 10-for-1 split, payable Sept. 30, 2024.
- Arista Networks completed a 4-for-1 stock split, payable Dec. 3, 2024.
- Palo Alto Networks initiated a 2-for-1 stock split, payable Dec. 13, 2024.
There's a good reason investors are so enamored with stock splits. It turns out that the strong business performance that preceded the stock split tends to continue, fueling additional gains. Research suggests that companies that conduct a stock split return 25%, on average, in the year following the announcement, more than double the 12% average return for the S&P 500 (^GSPC -1.11%), according to Bank of America analyst Jared Woodard.
While there are plenty of stocks that could join the fray, I predict Meta Platforms (META -0.59%) will be the most prominent stock split of 2025. Read on to find out why.
Image source: Getty Images.
Unrivaled reach
When it comes to breadth of users, Meta Platforms ranks among the highest on the planet. As the parent company of social media platforms Facebook, Instagram, WhatsApp, Messenger, and Threads, Meta reaches 3.29 billion daily users, with more joining the fray every quarter. That gives the company unrivaled reach in the social media space, and advertisers are willing to pay up to tap that audience.
Furthermore, Meta has a treasure trove of data on its users, which helps the company more accurately inform its digital advertising. Every post, message, photo, and thumbs up provides the company with vital information that helps ensure that the targeted advertising reaches its intended audience.
The combination of unrivaled reach and unmatched data has helped Meta become the world's second-largest digital advertiser, behind Alphabet's Google. This, in turn, has helped Meta rack up consistently strong financial results. In the third quarter, the company generated revenue of $40.6 billion, up 19% year over year, while earnings per share (EPS) of $6.03 jumped 37%. The widening chasm between revenue and earnings growth helps illustrate the company's scale and leverage.
A large and growing market
Meta's impressive growth aside, there are other reasons to be bullish. Worldwide ad spending is expected to increase roughly 11% and surpass $1 trillion for the first time in 2024, according to ad industry researcher WARC Media. Social media is expected to be the fastest-growing segment in digital advertising, up 14% this year, representing about 23% of total ad spending, according to the report.
In fact, Facebook is on track to surpass $100 billion in global ad revenue this year, making it the only other company besides Google to achieve this Herculean feat.
The AI wild card
Artificial intelligence (AI) has generated a lot of buzz over the past couple of years. The chipmakers and major cloud providers have been among the biggest beneficiaries of the early stages of AI adoption, but Meta saw an opening and wasn't willing to be left behind.
The company has a long history of deploying AI to direct its advertising and tag users in photos, among other uses. However, thanks to its large cache of user data, Meta was able to create its own top-tier large language models (LLMs) that underpin generative AI.
The fruit of those efforts is LLaMA (Large Language Model Meta AI), the AI system behind Meta's AI chatbot. The latest version -- LLaMA 3.1 -- is "in a class of its own," according to management. The company is committed to keeping LLaMA open source, which will fuel greater adoption and provide even more data.
Meta AI is available at no cost to individual users, though it does charge enterprises and cloud infrastructure providers to host it on their respective platforms. This is an entirely new revenue stream for Meta, which could help drive the company's future growth
Why Meta is a prime stock-split candidate
There's no denying that Meta has been a market-beating stock. Over the past decade, the company's revenue has soared 954%, driving its net income up 1,790%. Those blockbuster financial results have fueled an equally impressive increase in Meta's stock price, which has surged 654% (as of this writing). In fact, since going public in 2012, Meta stock has risen nearly 16-fold from its $38 IPO price. It's surprising, then, that Meta is the only "Magnificent Seven" stock that has never split its shares.
While it hasn't officially announced any intention to do so, with its current share price above $600, Meta looks like a prime candidate for a stock split, especially in light of the fact that so many of its peers have already done so.
That said, investors shouldn't buy Meta stock simply because it might conduct a stock split -- but there are plenty of other reasons to like the company. One of the most compelling might be the stock's valuation. Meta currently sells for less than 29 times earnings, less than the average multiple of 31 for the S&P 500.
Add to that its attractive valuation, dominance in the social media space, and a consistent track record of growth, and there's a strong case why now a great time to buy Meta -- even if it doesn't split its shares in 2025.
