Meta Platforms (META) is among the most-watched mega-cap tech stocks in the market, and for good reason. The company’s core social media empire, which started with Facebook and has since expanded to include Instagram, WhatsApp, and Messenger, now has more than 3.5 billion daily active users across all of its networks.
Over the decades, the company has monetized these eyeballs to an incredible extent, now generating incredible profits and cash flow that the company piles into its other high-growth initiatives. Of late, that spending has materially shifted from tens of billions of dollars a quarter on its Reality Labs division (its metaverse efforts) to Meta’s growing artificial intelligence portfolio.
Recent headlines around Meta’s potential unveiling of its new Mango artificial intelligence model alongside its Avocado model could propel significant future growth, and investors appear to like what they see (see chart above). Let’s dive into why this video-focused AI model could be the future and what investors may want to think about when it comes to this tech giant’s fundamentals moving forward.
Meta’s new Mango platform brings about another fruit-named AI model to the mix, this time focusing on video content creation, something that could bolster the company’s Reels and Instagram Stories profit drivers. The integration of application-specific models is something we’re seeing ramp up, and Meta appears to be intent on utilizing AI to boost its profits directly. Allowing consumers to produce more content with the help of AI across its social media platforms is a use case that certainly makes sense. This launch, in combination with Avocado (which should make coding easier for the company’s existing tech talent), could lead to a double whammy of a surge in content with less headcount. Those are the kinds of efficiencies Meta hopes can drive significant margin and valuation multiple expansion over time.
Looking at Meta’s overall profit margin of nearly 38%, a hefty number for any tech company of its size, the company is clearly doing a lot right. With a price/cash flow ratio of just 21 times, investors can achieve a free cash flow yield of nearly 5% on this stock, which is certainly healthy. This, in addition to a petite dividend yield of around 0.3% at the time of writing, is more than the yield on fixed-income securities. In combination with some solid price appreciation expected in the years to come (I’ll get into analyst price predictions below), META stock could be a very profitable bet right here.
