From Morningstar: 2024-09-20 06:36:00

Wide-moat Meta’s fair value estimate raised to $560 due to optimistic outlook on AI investments enhancing ad-targeting business. Morningstar applies 3 stars, wide economic moat, high uncertainty rating. Although AI investments could boost core business, Reality Labs division raises long-term value concerns, resulting in a reduced capital allocation rating from Exemplary to Standard.

Meta leads social media with billions of monthly active users across platforms like Facebook and Instagram. Applications continue to evolve with features like Stories and Reels, improving user engagement and revenue through ad placements.

Shift to digital advertising boosts Meta’s revenue, with investments in ad-targeting algorithms driving improved returns for advertisers. Sales expected to grow at 12% CAGR over five years, primarily fueled by increased average revenue per user and potential growth opportunities in Asia and beyond.

Profitability remains strong with expected 2024 GAAP operating margins near 40%. Meta’s profitability outlook steady over five years, balancing increased efficiency with ongoing investments in AI and Reality Labs.

Meta’s continued investments in AI, particularly ad-targeting algorithms, seen as value-accretive despite challenges from Reality Labs division. Expansion beyond ad revenue model includes Llama language model and chatbot assistant within applications to drive user engagement and usage.

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