Meta's Latest Update Just Unlocked 20% Upside

Key Points

• Meta shares have easily outperformed their peers this year but look stronger than ever.
• Tailwinds in the form of AI innovations and new subscription revenue should send the stock higher. 
• A break above $330 in the coming sessions would confirm the next stage of the rally has begun.

Shares of Meta Platforms Inc NASDAQ: META have been on fire for the past year, gaining more than 250% in value from the multi-year lows they touched last November. It's turning into a remarkable comeback story, considering that less than twelve months ago, they were trading back at 2015 levels. Now, with just over two months left in the year, they're finding themselves within 20% of their all-time highs. 

From the once-fabled FAANG group of tech titans that captured the market's imagination, they are by far the best performers of the past year. Alphabet Inc NASDAQ: GOOGL, with a 60% gain over that timeframe, which is about a quarter of what Meta's shares have tacked on, is their closest competitor. 

Strong Performance

You'd be forgiven for thinking that as a result of this strong outperformance from its peers, Meta stock might be due a pullback or some kind of reversion to the mean. But if anything, it's looking more and more likely that it's going to test its own all-time highs from 2021 instead, regardless of how the other stocks perform into the end of the year.

Chief among the tailwinds building up behind the stock are the reports that Meta is planning to introduce ad-free subscription plans to its Facebook and Instagram users in Europe. They've already gone so far as to begin discussions with EU regulators around this, and it's providing a welcome bump to the stock's upside that should soon send it to 52-week highs. 

Reports suggest the plans would cost between $6-14 a month, depending on what's included or offered to subscribers. Bank of America took the opportunity to reiterate their Buy rating on Meta shares as a result of the news while giving shares a fresh $375 price target. From where they closed on Monday, this points to further upside in the region of 20% and were shares to hit this in the coming weeks, they'd be within a few dollars of a new record high.

Getting Involved

For those of us on the sidelines and considering getting involved, it's an ideal catalyst to have added to the roadmap. Just when investors might have been thinking Meta had logged all the gains it had been hoping to make this year and was due for some consolidation, along comes talk of a fresh revenue stream that their business model is ideally suited for.  

As of the second quarter of this year, Facebook had more than 2 billion daily active users, and Instagram wasn't far behind. Can you imagine if the subscription plan is eventually rolled out worldwide and if even just 1% of the current user base signs up? Meta would easily be looking at an additional $4 billion in annual revenue for essentially very little work. In that kind of context, the 20% upside being targeted by Bank of America feels pretty achievable. 

For all that, though, risks obviously remain that are worth noting. The regulators might push back on the plans, and they might never get off the ground, or Meta's user numbers might struggle in the coming years. But as risks go in the tech world, these are fairly minor, and they haven't stopped other big names rowing in behind the stock. 

Targeting Fresh Highs

Barclays was out with an Overweight rating earlier this month and a $410 price target, which both eclipsed that from Bank of America and pointed towards new record highs, and that was before the news broke of Meta's subscription plans.

Their bullish comments were driven by how favorably Meta is exposed to AI and, specifically, consumer adoption of it. We've already seen the company roll out AI image editing on Instagram, for example, and this kind of innovation will only gather pace into next year. 

Meta shares are continuing to trade north in a strong uptrend characterized by higher highs and lower lows, which means it's looking strong without looking overbought. If shares can break their recent high of $330, that will confirm the start of the next stage in the rally, one that should see them trade up toward $400 and beyond.