The company formerly known as Facebook, Meta Platforms (META), has seen its stock price fall by 65% this year and has been among the most controversial companies in the last several years.
Despite its struggles against both internal and external turmoil, they still operate a compelling business, with over 2 billion daily active users, and 3.7 billion people using one or more of its related businesses each month.
Quite staggering numbers!
While many bulls have left Meta, the price has gotten down to levels not seen since 2016, making valuation metrics attractive enough for investors to take a second look at the company.
And despite all the challenges facing Meta Platforms, the company retains a dominant position in the space. But would these be enough for the previous bulls to like Meta once again? Let’s have a closer look.
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Why Meta Platforms?
One of the primary bull cases for Meta Platforms is that the stock is a screaming value buy right now, after suffering one of the most dramatic price drops in recent memory.
Of course, META stock is so low because Meta Platforms is burning through tens of billions of dollars in cash in pursuit of its metaverse fantasies.
But when a previously high-flying stock and a name as recognized as META stock falls, analysts and investors alike are bound to wonder if shares are an appealing bargain buy.
Indeed, Wall Street analyst consensus for Meta is pegged at $154.19, representing a potential 30% upside within the next 12 to 18 months for META.
But, if Meta Platforms can deliver higher-than-expected monetization via Instagram, Stories, and video, as well as monetize its new e-commerce feature and produce higher-than-expected user engagement, shares at current levels could look insanely cheap.
As Meta Platforms approaches its next earnings report date, Wall Street will be looking for signs of optimism. Analysts estimate Meta Platforms will earn $2.13 per share.
This represents a 41.96% decrease year over year. Meanwhile, our most recent consensus forecast predicts revenue of $31.3 billion, a 7.04% decrease from the prior-year quarter.
META’s full-year estimates are for earnings of $8.97 per share and total revenue of $115.73 billion. These figures show year-over-year changes of -34.86% and -1.87%, respectively. At the same time, Meta Platforms is now trading at a Forward P/E ratio of 13.06, representing a discount to the industry average Forward P/E of 45.9.
While META does not really have ideal figures to show for at the moment, the recent organizational reshuffling at Meta Platforms and other streamlining operations shows that the company is taking steps to actually turn things around for them.
After falling by a tear-inducing 80% from its September 2021 high of $384, down to $88 last November, the price has somewhat managed to stabilize between $110 and $124 per share, but as I said before…still at levels not seen since 2016!
Really crazy if you think about it.
After rallying significantly by almost 40% since its November lows, momentum for META seems to be stalling. It would be crucial for the stock that the support level established at $110 holds so that it can make another attempt at taking out the resistance at $124.
But if successful, META could have enough momentum to revisit the $155 price level, and if its fundamentals also improve along with the economy, a revisit of the $300 level is not out of the question.
The three main competitors for Meta Platform’s Facebook right now are Tiktok, Snapchat (SNAP), and Google’s Youtube (GOOGL). Each of these competitors is infringing on Facebook’s territory in a different way.
YouTube, TikTok, and Snap are all competing with Facebook for both eyeballs and income. And they are tough competitors, as seen by Alphabet’s market share and TikTok’s engagement. If they continue to increase FB’s engagement, they may eventually begin to have a negative influence on its revenue.
However, one of the biggest concerns for META is the transition of Meta Platforms from a social networking platform, to one that focuses on the metaverse.
Before rebranding as Meta Platforms, Facebook was a money-making engine that was expanding quickly. But the name change also brought a change in business priorities, which doesn’t seem to be working out so far, as earnings miss after earnings miss resulted in mass layoffs within Meta Platforms.
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While it doesn’t help that their investment in the metaverse is quickly depleting funds, even as the advertising industry’s profits are gradually dropping, META can still do some things to turn things around.
Meta must demonstrate to advertisers that their services can still provide an appealing RoAS, whether through enhanced attribution mechanisms or more specialized e-commerce services. In this sense, I believe the wheels are already turning, and I anticipate encouraging outcomes from the advertising industry next year.
However, convincing new or old investors to buy META stock may be difficult, the bottom line is that META must increase its profitability. And if it fails, its current cheap valuations may be justified, and meaningless at the same time.
However, if Meta Platforms do manage to turn things around, buyers and likers(pardon the pun) at this price point would be handsomely rewarded.
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