Meta Platforms (NASDAQ: META) stock nearly trebled last year as it benefitted from a tech sector rebound. Not many people saw that type of performance coming, myself included.
Also a surprise to me was learning that Scottish Mortgage Investment Trust (LSE: SMT) had recently rebought Meta shares.
Why has it done this? And should I also invest in the social media giant?
I’m slightly baffled
Scottish Mortgage sold its Meta holding in 2020/21 after questioning whether the company could keep up its growth rate at scale.
Now the FTSE 100 trust has bought back in, saying the firm is set to benefit from generative artificial intelligence (AI) and digital advertising.
I do find this repurchase slightly baffling, to be honest. Meta’s four platforms — Facebook, Instagram, Messenger and WhatsApp — haven’t really changed that much. It still makes massive profits from advertising and has long been using AI (for targeted ads, content moderation, and so on).
Plus, it must have been a $700bn-$900bn company when the trust reinvested. Scottish Mortgage typically invests in firms with a lower market cap than that.
Claire Shaw, the trust’s portfolio director, said Meta is an “advertiser’s dream, given that these platforms touch 70% of the connected population outside China.”
It’s interesting she mentions China because Scottish Mortgage also has a large holding in ByteDance, the Chinese parent company of TikTok.
There’s continuing speculation that the social media app could be banned in the West on security grounds. If so, Meta would surely stand to benefit from this. Meanwhile, ByteDance’s private valuation would likely plummet.
Of course, TikTok might never be banned. But Meta may prove a useful hedge for Scottish Mortgage in case it ever is.
A year of efficiency
Meta stock came roaring back in 2023 after a big cost-cutting initiative by CEO Mark Zuckerberg. He called it a “year of efficiency”.
The company also reignited double-digit revenue growth after reporting its first ever top-line contraction in 2022. That was the year the company pivoted aggressively towards the metaverse after changing its name from Facebook in late 2021.
So if 2022 was the year of the metaverse, and 2023 the year of efficiency, what will 2024 be?
Well, going by the Q3 earnings call, it could well be the year of AI. Zuckerberg mentioned it a lot.
Will I be investing too?
Analysts are predicting net income to rise about 20% to $45bn in 2024. That means the stock is currently trading at around 20 times this year’s forecast earnings.
That’s not particularly expensive relative to other Big Tech stocks. But there’s the potential for tighter regulation and more privacy fines, particularly from the EU.
I don’t see Meta shares trebling again in value this year. But with a market cap of $909bn, the company is getting very close to re-entering the exclusive $1trn club it fell out of in 2021.
It would only need to rise another 10% to do so. I wouldn’t be surprised to see it get there, possibly this year.
Looking ahead, I think Meta could offer investors good returns. Facebook and Instagram are indeed the stuff of dreams for advertisers, and WhatsApp could still be monetised.
But on balance, I’m satisfied to be invested indirectly through my Scottish Mortgage holding.
