This Waking Giant Could Become a $2 Trillion Stock by 2030

Investors temporarily lost confidence in social media giant Meta Platforms (META -0.05%). Shares fell to as low as $88 last fall, but have rallied back to around $300 per share, enough to value the company at about $750 billion.

So many don't realize yet that Meta's value is built on a very narrow part of its company -- Facebook and Instagram. However, Meta's about to pull several growth levers over the coming years that could potentially add billions in profits to Meta's pockets.

I'll walk through what those are and show you how this stock could soar to a $2 trillion valuation by 2030. Buckle up.

Mark Zuckerberg's Meta methodology

Meta founder and CEO Mark Zuckerberg knows how to play the long game. He bought Instagram for $1 billion in 2012 and kept it mostly free of advertising for several years before any meaningful attempt at ad monetization. Instagram just started selling verification checkmarks earlier this year, and is still ramping up the monetization of its video product Reels.

The company then bought messaging app WhatsApp in 2014 for nearly $22 billion. However, aside from selling access to its application programming interface (API), WhatsApp has remained free to users, generating almost nothing for Meta for years.

At the end of 2022, Zuckerberg began deploying ads that users can click through to WhatsApp, which did almost $2 billion annualized as of Q3 of last year. He hasn't itemized WhatsApp revenue since, but did note in Q1 2023 earnings that it's becoming material to the company.

What's the point here? Zuckerberg often focuses on growing a product and perfecting the user experience before trying to monetize the audience, which can create friction.

This is a luxury that Meta can afford because Facebook is such a cash cow for the company. Facebook is generating $9.62 in quarterly revenue per user, but the entire family of apps is doing just $7.59 per user. In other words, it's covering apps like WhatsApp that bring little revenue to the table right now.

Future monetization levers Meta can pull

Meta is arguably a legal monopoly of social media platforms. At the very least it's been able to monetize social media in ways that competitors like Twitter have struggled to match. Zuckerberg's patience in how Meta is monetized sets up the company and investors for compelling opportunities to generate growth over the coming years.

For starters, Meta launched its Twitter-like competitor Threads on the evening of July 5 and picked up more than 30 million users not even a day later. Twitter has an estimated 372 million users, so achieving nearly 10% of your competitor's audience in a day is a massive success.

Investors will need to see how the Threads platform evolves and whether users stick around as the new-app smell wears off.

Second is the continued monetization of WhatsApp, which has an estimated 2.7 billion users due to its security and ease of use in various economies worldwide. Third is the growth of Meta's Reels product, short-form videos that Meta has been focusing on to compete with TikTok.

These apps have a potential reach of billions of people between them, and Threads' recent success signals that social media remains a sticky business that users still enjoy using. Again, these opportunities will play out over the years, but it's important to begin tracking them early.

Could Meta be a $2 trillion stock?

It's a tall ask considering Apple is the world's only public company worth that much today. However, the path seems feasible at the least. Today Meta has a market cap of $750 billion and trades at a price-to-earnings ratio (P/E) of 25. Factoring in earnings growth values the stock at a PEG ratio of 1.1, arguably cheap for such a quality business with long-term opportunities ahead. Therefore, it seems that investors can use Meta's current valuation as a starting point for projecting out to the future.

Analysts currently estimate Meta will grow earnings by an average of 22% annually over the next three to five years. For the sake of being conservative, I'll assume 22% earnings growth for three years and then drop it to 10% annual growth for the next four.

Based on 2023 earnings-per-share (EPS) estimates of $11.94, the company will earn as follows:

Source: Chart compiled by the author.

Now you can apply an earnings multiple to see where the stock might trade. For example, at 20, 25, and 30 times earnings, shares would trade at $635, $793, and $952, respectively. There are 2.563 billion outstanding shares, so (assuming zero share repurchases moving forward) these prices give Meta a market cap between $1.6 trillion and $2.4 trillion in 2030.

In other words, Meta could undoubtedly be a multi-trillion-dollar stock at the end of the decade. If you have confidence in Zuckerberg's execution, it might not be a bad idea to consider buying and holding shares and enjoying the ride over the coming years.