Uncovering quality tech investments at fair valuations can sometimes feel like a treasure hunt. While it’s true that the market is teeming with successful performers in the tech world, these stocks often come with premium price tags. However, two standouts in the crowd that are reasonably priced are Meta Platforms and Paypal. Meta’s forward price-to-earnings ratio hovers near the S&P 500 average, whereas, Paypal, surprisingly, trades at a price point significantly lower than the average. Let’s delve into why these two tech stalwarts could offer attractive long-term investment prospects.
One of the hallmarks of premium tech enterprises is their adaptability and foresight; qualities well encapsulated within Meta Platforms. Having its roots in social media, Meta has journeyed into uncharted territories, marking its presence in virtual and augmented reality, the metaverse and the wide landscape of artificial intelligence. Despite this diverse portfolio, its ride hasn’t always been smooth, especially when one peels back the layers on each sector.
The Meta Platforms’ Reality Labs, a division focused on the trio of VR, AR and the metaverse, met with hurdles along its path. Its development efforts resulted in losses surpassing $60 billion throughout the past half-decade. Yet, the company’s recent success—sales topping 1 million for its Ray-Ban Meta glasses, equipped with AI features—indicates that it’s too soon to dismiss Meta’s aspirations in this field. Nonetheless, outcomes so far have fallen short of the mark.
Artificial Intelligence paints a much more positive picture for Meta. The company leverages AI-powered content to amplify user engagement across its platforms while offering advertisers AI-enabled tools to maximize the value of their ad spends. This strategy is propelling additional investments from advertisers and fostering a more interactive user environment.
Meta’s recent Q1 results revealed a promising uptick in key metrics—a 5% annual growth in ad impressions, an increase in the average price per ad by 10%, along with a 16% surge in total quarterly revenue, surpassing projections. Adjusted earnings per share also took a leap by 37%, beating expert forecasts.
However, Meta’s heavy reliance on advertising revenue, accounting for about 98% of its total income, could spell trouble in periods of economic downturn. These are times when businesses could slash their marketing budgets, posing a potential risk to Meta’s earnings. Yet, given Meta’s robust financial health—cash and marketable securities totalling $70.2 billion as of March end—it should be well-positioned to weather potential storms.
Over the past three years, Meta shareholders have enjoyed robust capital appreciation, with the stock price climbing 238%—almost five times the growth witnessed by the S&P 500. This rate of growth may not be sustained in the next decade, but the constant efforts put in Meta’s AI and the power of its massive user base should propel it to continue outshining the market.
Paypal has had a contrasting growth story compared to Meta. The stock tripped over the past three years, edging down by 4.3%. This could be attributed to the mounting competitive pressure from an array of alternative digital payment solutions. A crucial factor, however, is the company’s changing leadership dynamics.
Under the new stewardship of CEO Alex Chriss since September 2023, Paypal has been steering towards transformation. Chriss, known for his successful customer and revenue scaling strategies during his stint at Intuit’s Small Business and Self-Employed Group, is earning plaudits for his tenure at PayPal where he recently reshuffled the leadership team and established key alliances in e-commerce, including a checkout partnership with e-commerce giant Amazon.
Earlier in the year, Paypal announced its ambitious full-service merchant platform, Paypal Open, consolidating its diverse offering under one comprehensive header. Moreover, Paypal is making headway into digital advertising with Paypal Ads, seeking to tap into the massive revenue opportunity that its substantial user base represents, comprising over 400 million Paypal users and more than 92 million on Venmo.
Paypal’s core business continues to hold strong, with annual payment volumes exceeding $1.5 trillion. The start of 2025 saw the fifth consecutive quarter of profitable growth, with a 31% hike in operating income. The company’s nudging performance is indicative of positive momentum, with a number of new growth avenues emerging.
A snapshot of Paypal’s financial health showcases a robust balance sheet as of March 31, with $15.8 billion in cash, cash equivalents, and investments. This comfortably outruns its debt tally of $12.6 billion, hinting at its strong financial standing. Combining this healthy balance sheet with the potential untapped revenue from advertising, Paypal appears to be a deeply undervalued stock which could offer substantial returns for long-term oriented investors.