Photo credit: finance.yahoo.com
In recent years, stock splits have experienced a notable resurgence, reminiscent of their prevalence during the late 1990s. After a period of diminishing interest, companies have once again embraced stock splits, often as a result of impressive growth and strong financial performance that lead to rising stock prices.
This current year showcases several notable instances:
Nvidia has implemented a 10-for-1 stock split, scheduled for June 7, 2024.
Chipotle is set to execute a 50-for-1 stock split on June 25, 2024.
Broadcom will carry out a 10-for-1 stock split on July 12, 2024.
Super Micro Computer will also implement a 10-for-1 split, effective September 30, 2024.
Arista Networks will complete a 4-for-1 stock split, effective December 3, 2024.
Palo Alto Networks will initiate a 2-for-1 stock split, set for December 13, 2024.
There are compelling reasons for the investor enthusiasm surrounding stock splits. Historically, the positive business results that precede a split often persist, leading to further stock price appreciation. According to research conducted by Bank of America analyst Jared Woodard, shares that undergo a stock split show an average return of 25% within a year of the announcement, which is significantly higher than the S&P 500’s average return of 12%.
Looking ahead, Meta Platforms (NASDAQ: META) is poised to be a key player in potential stock splits for 2025. Here’s why.
Meta Platforms stands out due to its immense user base. With Facebook, Instagram, WhatsApp, Messenger, and Threads under its umbrella, the company effectively engages approximately 3.29 billion daily users, a figure that continues to grow. This extensive reach attracts significant advertising investments, reflecting the company’s dominance in the social media industry.
The wealth of data generated by user interactions empowers Meta to refine its digital advertising capabilities. Every action taken by users serves as valuable input, allowing the company to deliver more targeted advertising.
Meta’s extensive reach and data analytics have made it the second-largest digital advertiser globally, trailing only Alphabet‘s Google. This leadership position has translated into robust financial performance. In the latest quarterly report, Meta announced revenues of $40.6 billion, marking a 19% year-over-year increase, while earnings per share (EPS) rose by an impressive 37%. This disparity between revenue growth and earnings reflects Meta’s scalability and operational leverage.
Another factor supporting optimism about Meta’s future is the anticipated surge in global advertising expenditure, which is expected to exceed $1 trillion for the first time in 2024, representing an 11% increase. Social media is projected to be the fastest-growing segment of digital advertising, with a growth rate of 14% this year, constituting about 23% of overall ad spending.
Moreover, Facebook is on track to achieve over $100 billion in global ad revenue this year, joining only Google in this exclusive club.
The rise of artificial intelligence (AI) has created significant momentum in the tech arena. While chipmakers and cloud service providers have been the primary beneficiaries of initial AI adoption, Meta is capitalizing on this trend as well. With an extensive backlog of user data, Meta has been able to develop sophisticated large language models (LLMs) that support its generative AI initiatives.
The centerpiece of these efforts is LLaMA (Large Language Model Meta AI). According to company management, the latest iteration, LLaMA 3.1, is exceptionally advanced. Meta is dedicated to maintaining LLaMA as an open-source model, which will encourage broader adoption while gathering even more user data.
While Meta AI is offered free for individuals, the company has begun charging enterprises and cloud providers for hosting services, creating a new revenue stream that could substantially contribute to its future growth.
Meta’s remarkable growth trajectory is evident; over the past ten years, the company has seen a staggering 954% increase in revenue, which has propelled net income up by 1,790%. This exceptional performance parallels a 654% surge in Meta’s stock price, which has increased nearly 16-fold since its IPO in 2012 at $38 per share. Interestingly, Meta is the only member of the “Magnificent Seven” stocks yet to execute a stock split.
Although there is no official announcement regarding a stock split, Meta’s current share price exceeding $600 positions it as a suitable candidate for such a move, especially given that numerous industry peers have already made similar decisions.
It’s important for investors to avoid purchasing Meta’s stock solely on speculation of a split. Nevertheless, multiple other factors make the company an attractive investment opportunity. Notably, Meta’s current price-to-earnings ratio of less than 29 is below the average of 31 for the S&P 500, underscoring its appealing valuation.
Taking into account its competitive position in social media, consistent growth trajectory, and attractive valuation, there are strong arguments for considering an investment in Meta, irrespective of potential stock splits in 2025.
Prediction: This Will Be the Most Prominent Stock Split of 2025 was originally published by The Motley Fool
Source
finance.yahoo.com