Will Meta Platforms Initiate a Stock Division in 2025?
Will Meta Platforms Initiate a Stock Division in 2025?
Companies that opt for stock splits are typically high flyers. The logic behind this is straightforward: stellar performance yields a lofty stock price. Historically, companies decide to divide their stock when they believe the price has reached levels that may discourage investors due to its perceived high cost.
One company yet to split its stock but might consider it in 2025 is Meta Platforms (META -1.73%), previously known as Facebook. Meta debuted as Facebook in 2012, trading at around $38 per share. Currently, its stock trades close to $600, which could be a price point at which it ponders splitting its stock.
Meta's stock price nears its peers' split point
If we speculate about Meta splitting its stock, we need to examine when some of its sector peers made this move. Comparable companies include its "Magnificent Seven" peers: Apple, Microsoft, Alphabet, Amazon, Nvidia, and Tesla.
All these tech giants, except for Microsoft and Meta, executed stock splits in recent years, offering us a relevant history.
If we consider Alphabet and Amazon as potential indicators of when Meta might declare a stock split, we would need to wait a few years. Both companies split their stock at a 20-for-1 ratio in 2022, when each traded above $2,000 per share. This resulted in a decrease to a more manageable price of $100 per share, following the split adjustment.
Apple, Tesla, and Nvidia were closer in price to Meta at the time of their last stock split announcements. If Meta follows this trio's footsteps, a split could be imminent.
Apple carried out its last split in 2020, at around $500 per share. Tesla announced stock splits in 2020 and again in 2022, when it traded for $2,000 and $840 per share, respectively. Nvidia split its stock in 2021 and 2024, when it traded for $760 and $1,200, respectively.
Nearly $600 per share puts Meta in the vicinity of a possible split. Given the current trend, it might be even higher by 2025.
Meta's recent results have been exceptional
Meta Platforms' business is currently performing exceptionally well. Its Llama generative AI model is experiencing extensive adoption across various industries, and its advertising platform is performing strongly. These combined factors resulted in a 19% year-over-year revenue increase in the third quarter, accompanied by a 37% increase in earnings per share (EPS) to $6.03.
However, some investors fear that Meta will invest too heavily in AI, as it mentioned significant growth in its 2025 capital expenditures. Despite these concerns, I remain relaxed. This increased expenditure could result in substantial gains in the future if Meta's AI model emerges as a winner in the generative AI competition.
If Meta triumphs in this race, there's a lot of potential upside. Conversely, if it fails, it will return to its former self: a social media powerhouse that generates substantial cash flow. In my opinion, the risk-reward scenario of the stock is promising, and investors can acquire shares at a moderate valuation.
At 29 times trailing earnings and 20 times 2025 earnings, Meta is reasonably priced for its current growth rate.
Therefore, I believe the stock price will continue to rise throughout 2024 and into 2025. A strong showing could persuade management to split the stock. Regardless, Meta Platforms is an excellent stock to buy now, and a split announcement would be an added bonus.
Given Meta Platforms' exceptional performance and high stock price, investors might find the cost of purchasing shares prohibitive. To attract a wider range of investors, Meta might consider investing some of its profits into further advancing its AI technology and eventually dividing its stock, as many of its tech peers have done in the past.
As Meta Platforms continues to excel in its AI and advertising efforts, its share price could continue to rise, approaching or even surpassing the split points of other tech giants who have successfully split their stocks. This could ultimately prompt Meta to consider a stock split, similar to its peers, to make its shares more affordable for a broader investor base.