Meet Wall Street's Newest Major Stock Split: It Has Soared 1,730% Since Its 2012 IPO, and There Is Plenty of Upside Left

A stock split is a corporate action in which a company increases the number of shares it has outstanding by dividing existing shares into multiple shares and proportionately decreasing its share price. Stock splits don't change a company’s intrinsic value, but they can garner significant attention because they make each share more affordable, potentially increasing trading activity.

And the latest major corporation on Wall Street to announce a stock split is none other than Meta Platforms (NASDAQ:META). The tech leader has beaten the broader equity market since its 2012 IPO, gaining a little over 1,700%. Yet, the stock still has outstanding long-term prospects.

Meta's strong third-quarter update

Meta Platforms announced its stock split alongside its third-quarter results. The split wasn't the best part of the company's update: Meta's financial performance during the period was pretty strong. Meta Platforms' revenue increased by 26% year over year to $64.6 billion.

True, the company's operating income dropped by 37% year over year to about $13 billion, but that was largely due to legal-related expenses. Meta recorded a $9.89 billion charge because of a recent legal settlement. Without that, the company's operating income would have increased by 11% year over year.

Besides, the legal settlement was worth the trouble. Meta Platforms agreed to pay up to $18 billion (with $12.7 billion guaranteed and $5.3 billion contingent on certain conditions) over 10 years to a bipartisan coalition of attorneys general representing dozens of U.S. states and territories in connection with lawsuits alleging that Meta's social media platforms have harmed consumers.

The amount is by no means catastrophic, especially considering the time frame. Returning to Meta's third-quarter results, the company posted earnings per share of $3.83, up 265% year over year, as the company's provision for income taxes dropped significantly. Meta also made progress elsewhere.

For instance, the company's daily active people across its websites and apps rose 3% year over year to 3.64 billion. Now turning to Meta's planned stock split, the company will create a new Class C non-voting common stock and issue one Class C share for each outstanding share.

The company emphasized that it is making this move to help raise capital. The tech giant could fund various activities by issuing Class C shares without diluting CEO Mark Zuckerberg's voting control. Meta's main motivation for doing this is clear: the company is looking to fund its aggressive artificial intelligence (AI) ambitions to tap into what it sees as a large market opportunity.

The AI tailwind

Meta made significant AI-related progress during the third quarter. For instance, the company released Muse, a consumer-facing AI agent that was an instant hit. Meta noted that more than 10 million people in the U.S. and Canada have set up Muse, and about 25% use it on any given day.

The company also reported that Muse is particularly popular as a shopping assistant, which is important given that one of Meta's plans to monetize the agent is to charge retailers small per-transaction fees.

Retailers only have an incentive to pay these fees if Muse-related shopping generates significant revenue for them. So, engagement with the personal agent will be critical to track. Meta still has a long way to go.

The company wants Muse to reach billions of people, and it will continue to invest to make that goal a reality. And if Meta can get there -- or even somewhere close to that target -- it will help boost the company's revenue and profits over the long run.

The company has also released a small-business version of Muse, as well as Muse Wonder and Muse Wonder Full, advanced AI agent models designed to handle tasks in expert domains, such as law and finance. Significant utilization here could also be a major boost to the business.

Of course, Meta's core ad business remains healthy and continues to generate most of the company's revenue. But Meta has a clearer path to a more diversified revenue stream than it has had in a long time, and that should excite investors.

Despite the fears that the company's AI investments would harm the business, the tech leader seems to have found a way to turn it into an advantage, and there is more where that came from. Meta isn't done delivering market-beating returns.

Prosper Junior Bakiny has positions in Meta Platforms. The Motley Fool has positions in and recommends Meta Platforms. The Motley Fool has a disclosure policy.