Stock splits have been all the rage in recent years and have become a calling card among many of the market’s most successful companies. The group of titles collectively known as “Magnificent Seven” significantly outperformed the S&P500 since the beginning of last year.
Here is the performance of member companies since the start of 2023:
Stock distribution are historically preceded by a long period of good commercial and operational performance, which gives rise to a surge in the share price.
It’s also no coincidence that over the past few years, most of these companies have done at least one stock split. Investors might be surprised, however, to learn that only one of the seven Magnificent companies Never divide his actions. However, given the company’s recent performance, prevailing tailwinds, and ongoing macroeconomic recovery, the last holdout – Meta Platforms – may finally consider a stock split.
Unrivaled reach on social media
Normally when you see the word “unprecedented” it tends to be hyperbole, but in the case of meta-platforms it turns out to be true. The company enjoys unparalleled reach through its suite of social media platforms, which includes three of the world’s largest social media platforms, measured in monthly active users. In the first quarter, Meta’s family of applications reached 3.24 billion people, or approximately 40% of the world’s population.
This expanded reach, combined with the company’s massive trove of user data, allows Meta to more effectively target the advertising that generates the bulk of the company’s revenue.
Marketing demand has dried up in the face of the economic downturn, but a rebound in advertising spending has already begun. Additionally, estimates for market growth have started to rise, with digital advertising revenue expected to increase 11% this year, according to S&P Global estimates. As the world’s second-largest digital advertiser, Meta Platforms is well-positioned to benefit from increased ad spending.
The AI joker
Another factor that could fuel Meta’s fortunes is the rise of artificial intelligence (AI). The company leveraged the aforementioned trove of data to train its Llama (Large Language Model Meta AI), the model that forms the basis of its Llama 3, which Meta describes as “one of the world’s leading AI assistants.” The company charges large cloud computing providers to include Llama in their offerings, but it’s free for users.
Chief Financial Officer Susan Li said on an April earnings conference call: “We continue to see attractive investment opportunities to both enhance our core business in the near term and capture meaningful opportunities in the longer term. in Generative AI and Reality Labs. » Meta has integrated generative AI into a wide range of its offerings, including providing AI-based tools to advertisers on its platform and using AI to present more relevant content to users.
AI is still in its infancy, so we don’t yet know to what extent Meta will leverage this technology to improve its business and financial performance, but the potential is there.
Is a stock split on the horizon?
History shows that stock splits tend to happen in waves, a point emphasized by Bank of America analyst Jared Woodard. The analyst noted that Nvidia is “another large-cap technology that pursues shareholder-friendly policies.” The chipmaker is the fourth of the Magnificent Seven to carry out a stock split since 2022, preceded by Alphabet, Amazon and Tesla. “Big Tech is going small,” the analyst wrote in a note to clients.
Woodard went on to point out that companies begin to consider doing a stock split once their stock price rises above a threshold of around $500.
There is more good news on the stock split front. Companies that cut their shares tend to outperform the S&P 500 in the year following the split. “Stocks saw total returns of 25% in the 12 months after a split was announced, compared with 12% for the broad index. Splits boosted returns in every decade, including early 2000s, when the S&P 500 was struggling,” the analyst wrote.
Meta Platforms has an excellent long-term growth track record. Over the past decade, its revenue has grown 1,150%, while its net profit has soared 1,460%. This sent its stock price soaring more than 656%, more than 3 times the return of the S&P 500. Yet the stock currently sells for 27 times earnings, on par with the S&P 500, despite its outperformance .
With a stock price of around $475 (as of this writing), Meta is nearing the threshold at which companies start considering a stock split, according to the study. While this is just speculation on my part, I wouldn’t be surprised if Meta announces a stock split later this year, if only to get investors excited about its shares again .
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Danny Vena holds positions in Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool holds positions and recommends Alphabet, Amazon, Apple, Bank of America, Meta Platforms, Microsoft, Nvidia and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Mad Motley has a disclosure policy.
Discover the only stock “Magnificent Seven” that has never been the subject of a stock split. That could be about to change. was originally published by The Motley Fool
