<div id="readability-page-1"><p><strong>Meta Platforms</strong> <span>(META<span> 0.53%</span>)</span> financial results have been impressive in the first half of the year. Its strong growth has been fueled by robust advertising demand and an engaged user base across its social media apps. The company, which owns Facebook, Instagram, WhatsApp, Messenger, and Threads, is making significant investments in artificial intelligence (AI) and innovative ad formats -- all while revenue and earnings are soaring. No wonder the Street has been buying up the stock.</p> <p>Meta Platforms remains one of the world's largest digital ad sellers -- an advertising-led business that can grow quickly when marketers spend and pull back just as fast when they don't. That mix of strength and fragility, however, is the point here. While Meta's execution in core ads has been impressive lately, two structural realities make its earnings power more volatile than peers in the so-called &#34;Magnificent Seven&#34;: exposure to advertising cycles and reliance on distribution largely controlled by <strong>Apple</strong> and <strong>Alphabet</strong>. Add in credible competition for user attention, and it's reasonable that Meta's price-to-earnings multiple sits in the 20s while others command richer premiums.</p> <div><p><img src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84MzM5ODcvbWV0YS1wbGF0Zm9ybXMtc3RvY2suanBnJnc9NzAw?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" width="700" height="373" original-src="https://imageproxy.pbkrs.com/https://g.foolcdn.com/image//query-b3A9cmVzaXplJnVybD1odHRwczovL2cuZm9vbGNkbi5jb20vZWRpdG9yaWFsL2ltYWdlcy84MzM5ODcvbWV0YS1wbGF0Zm9ybXMtc3RvY2suanBnJnc9NzAw"/></p><p>Image source: Getty Images.</p> </div> <h2>Ad-driven momentum -- and its limits</h2> <p>Meta's recent numbers are strong. In the second quarter of 2025, revenue rose 22% year over year to $47.5 billion, while income from operations increased 38% and operating margin expanded to 43% as ad demand stayed healthy. Management also noted in the company's follow-up second-quarter earnings call that demand was broad-based across verticals and geographies, with smaller advertisers contributing to growth.</p> <p>Why wouldn't a business growing like this command a price-to-earnings multiple in the thirties? The catch is concentration. Substantially all of Meta's revenue is generated from advertising, and those results fluctuate with marketers' budgets. Advertising tends to behave like a cyclical expense: when growth fears rise, many brands and direct-response advertisers trim spend quickly. That dynamic can compress both Meta's top line and operating leverage more suddenly than businesses with more recurring, contracted, or diversified revenue.</p> <h2>Platform dependence</h2> <p>Meta's second structural risk is distribution. Meta's products ride on mobile operating systems and app stores it does not control. In its annual filing, the company warns that changes by Apple or Alphabet can limit its ability to target and measure ads, degrade product functionality, or even make access to its apps more difficult -- and that Apple's iOS changes beginning in 2021 have negatively impacted ad performance and revenue. Apple's App Tracking Transparency framework formalized user opt-in for cross-app tracking, illustrating how a single platform policy can ripple through Meta's ad systems. These aren't theoretical worries; they're documented factors that have already affected results and could again.</p>  <h2>A battle for younger generations</h2> <p>Competition for attention also remains real. TikTok's rapid ascent showed that new social platforms can win share fast, and <strong>Snap</strong>'s Snapchat remains deeply popular among U.S. teens alongside Instagram. Meta has responded well with Reels and recommendation improvements -- and the recent quarter reflected that -- but the battle for time and attention is more competitive than ever.</p> <p>While Snap may not initially seem like a threat to Meta, it's worth noting that the company's daily active users are growing rapidly. In Q2, Snap's daily active users rose 9% year over year. In addition, the company's monthly active user count is approaching 1 billion.</p> <h2>What this means for valuation</h2> <p>A business that is (1) tied to discretionary ad budgets, (2) dependent on external platforms for distribution and some of its key data signals, and (3) facing credible attention from rivals deserves a lower valuation than platform owners or companies with more diversified, contracted, or utility-like cash flows. Today, Meta's price-to-earnings multiple sits roughly in the high-20s on a forward basis, below <strong>Microsoft </strong>and <strong>Amazon</strong> (both in the low-to-mid 30s recently) and slightly above Alphabet, with a price-to-earnings ratio of about 27. That spread mostly makes sense. Microsoft and Amazon lean more on subscription, enterprise, and cloud spending, while Alphabet has an advertising-heavy business. With this said, I believe Alphabet arguably deserves to trade at a higher multiple than Meta. Though its business relies a lot on ads, it benefits from a broader mix, including a fast-growing cloud segment and control of the Android platform.</p> <p>Yes, Meta stock may continue to compound if engagement holds and ad tools keep improving. Additionally, Meta seems to try to always be prepared for risks by maintaining a healthy balance sheet -- something that may help it during times of economic weakness. But the nature of its revenue and its relationship with gatekeepers mean there's always a chance that macro softness, a new privacy rule, or a policy change dents performance faster than expected. Advertising cyclicality, platform exposure, and intense competition for attention, therefore, argue that a sustained price-to-earnings multiple in the 20s is a prudent place for the market to settle, even as results remain strong.</p>                                                                            </div>

Here's Why Meta Platforms Should Trade at a Lower Multiple Than the Rest of the "Magnificent Seven"