Meta Platforms is a Buy, says Roth Capital

An extra $3 billion in revenue is what we can expect from Meta Platforms (Meta Platforms Stock Quote, Charts, News, Analysts, Financials NASDAQ:META) after the company just announced a monthly subscription service. That’s according to Roth Capital Partners analyst Rohit Kulkarni, who reiterated a “Buy” rating on the stock in an Tuesday update to clients.

Social media giant Meta Platforms announced on Sunday a new paid verification subscription service called Meta Verified, one which will see users on Instagram and Facebook receive a blue verification badge after submitting their government ID and paying $11.99 per month on the web and $14.99 per month on Apple’s iOS or Android.

“This new feature is about increasing authenticity and security across our services,” said Meta CEO Mark Zuckerberg in an Instagram update.

Kulkarni said there’s been a mixed track record of late from social media platforms who have dived into the paid subscription model. Last July, Snapchat launched SnapChat+, which has managed to reach the two million mark in paid users in less than six months, while this past October, Twitter launched its Twitter Blue service. Twitter Blue was initially pulled a month later after users found ways to impersonate famous names and brands with their accounts, while Twitter CEO Elon Musk had predicted about half of Twitter’s revenues would soon come via subscriptions, yet so far subscriptions are at less than 400,000. 

But Kulkarni says Meta’s attempt could be a money-maker for the company.

“Over the past six months, Meta has disclosed several incremental revenue contributors, including click-to-messaging ads at $10 billion in annual recurring revenue (ARR). We believe WhatsApp and Reels would likely reach multi-billion dollar ARR during 2023. With ‘Verified,’ we believe a successful subscription service could imply >four per cent penetration in U.S. and Europe DAUs (currently, approx. 500 million DAUs) by end of 2024, implying >20 million paying subs, or >$3 billion in ARR by the end of 2024,” he said.

For 2023, Kulkarni is forecasting META to generate revenue of $125.221 billion and EPS at $9.95 per share for a P/E ratio of 17.4x, while for 2024, he is calling for $135.245 billion in revenue and $11.11 per share in earnings for a P/E of 15.6x.

Meta Platforms has seen its share price rise by about 44 per cent so far in 2023, getting a major boost after the release of quarterly earnings earlier this month.

With his “Buy” rating, Kulkarni maintained a 12-month target price of $210 per share, representing at press time a projected return of 21.5 per cent.