Meta Platforms (Facebook) Share: Still a BUY?

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Meta Platforms (Facebook) shares have been under pressure in February, after the company’s Q3 earnings came in below expectations for the Oct-Dec 21 period. The share price is down more than 30% since last 1-month and many investors are questioning whether it is a value buy now after this massive fall in share price. 

Let us understand what is happening in the Facebook Shares and why did the share price fall?

The company’s latest quarterly earnings disappointed investors on many fronts such as popularity among young customers, ad-revenue as well as competition. The investors punished the stock and ongoing tech-stocks sell-off further added to the downfall of the share price. Meta reported its first-ever quarterly drop in daily active users. Meta Platforms is facing stiff competition from video-sharing apps such as YouTube Shorts and TikTok. The shares are down about 35% in the last one month period, with the bulk of the drop coming on a single day on Feb 4th. The stock has come under pressure due to recent changes to Apple’s software for iPhones, which require that companies like Meta ask users for permission to gather data, making it difficult to run targeted advertisements. The new privacy feature is expected to cut $10 billion from Meta’s sales in 2022 or about 8.5% of Meta’s 2021 revenue. 

Meta share price: Performance across tenures

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  • Meta Platforms has reported a 5% on-year drop in adjusted earnings per share to $3.67, below street estimates of $3.85. Higher expenses weighed on the company’s profits. 
  • Revenue grew 20% on-year to $33.67 million, roughly in line with the consensus.
  • Meta's Reality Labs division reported losses of $3.3 billion in the quarter on revenue of $877 million.
  • Meta's Family of Apps, including Facebook, Instagram, WhatsApp and more, reported operating income of $15.9 billion on revenue of $32.8 billion. 
  • Meta also highlighted a rise in data costs in India 
  • The projection for the next quarter has also come in below street expectations. The company expects to face a number of headwinds in the short term, including increased competition for people's time, a shift in the user engagement to products that generate income at lower rates, various platform, and regulatory changes, the impact of cost inflation and supply chain disruptions on advertiser budgets. 
  • Facebook recently noted that Apple’s App Tracking Transparency feature would decrease the company’s 2022 sales by about $10 billion. 
  • Not all is bleak, however, as the company has announced some interesting long-term measures. 

Analysts on Meta Platforms

Most analysts continue to have a ‘Buy’ call on the shares, noting that the company has been through challenging transitions before and always bounced back. 

  • JP Morgan has cut Meta stock price target to $284 from $385 earlier noting that the company is "embarking on an expensive, uncertain, multi-year transition." 
  • Credit Suisse has highlighted the untapped monetization potential of WhatsApp and Messenger. The global brokerage firm has kept an outperform rating for Meta stock, cutting the target to $336 from $430 earlier.
  • Loop Capital has cut FB stock to hold from buy. The firm has also reduced the target price to $230 from $380 earlier. According to the research report, the decline in Facebook users is a warning that current pressures may compress profit margins and prove hard to turn around.

Long term Measures

Beyond Reels and commerce, Meta is looking to build the next computing platform and bring the metaverse to life. This is a major area of investment for the company and an important part of its strategy. Building the foundational platforms for the metaverse will be a long road. The company recently released the 128GB Quest 2, replacing the 64GB model for $299. With EssilorLuxottica, it released its first smart glasses. 

The company is also building multiple generations of our VR and AR products at the same time, as well as a new operating system and development model, a digital commerce platform, content studios, and of course a social platform. The progress on all of these products of the metaverse ecosystem will decide the future trajectory of the company. Meta is playing a long game here, and those long-term interests may have been served by near-term weakness.

Final Thoughts

The recent rout in the shares have made Meta Platforms a probable long-term bet. The stock is as cheap now as it has ever been since the company’s IPO in 2012 (in terms of PE ratio). At $219, Meta Platforms trades for 17 times projected 2022 earnings of $12.59 a share, the only other time that Meta was close to being this inexpensive was in late 2018. 

The change of name to Meta points to Zuckerberg's broader ambitions to lead social networking into the next frontier. "Our hope is that within the next decade, the metaverse will reach a billion people, host hundreds of billions of dollars of digital commerce, and support jobs for millions of creators and developers," Zuckerberg said while talking about the company’s long-term vision. 

The company’s transition into building the next computing platform and bringing the metaverse to life is a step in the right direction. This is a major area of investment for the company and an important part of its strategy. Given the company’s strong user base and execution capabilities, Meta Platforms could be a good bet from a long-term perspective.