Stock Analysis & Ideas

Meta Platforms: A Long-Term Metaverse Leader?

Facebook’s parent company, Meta Platforms (FB), turned in its earnings report, and the results ignited a firestorm of buying from investors. The stock is currently up 18% on the day.

Despite the mixed bag that Meta’s earnings presented, there’s still quite a bit of reason to like Meta. I’m bullish on Meta, thanks to the sheer potential of what it represents and how it may be ready to go well beyond Facebook itself.

The last 12 months for Meta share trading showed that it needed a win, and boy did it get one. While spending most of 2021 in the $300-$350 range with some breakout points, an outright collapse kicked off in February. That plunge saw Meta go from a little over $320 on February 1 to just under $170 on April 27.

The latest news lit a fire under investors, as the company presented a mixed bag of earnings news. The company turned in $2.72 per share in earnings, which handily beat the $2.56 per share expected by a Refinitiv consensus.

The bad news came with revenue, oddly enough, as the $27.91 billion Meta posted proved just shy of the Refinitiv consensus that looked for $28.2 billion in revenue.

Wall Street’s Take

Turning to Wall Street, Meta Platforms has a Moderate Buy consensus rating. That’s based on 28 Buys, eight Holds, and one Sell assigned in the past three months. The average Meta Platforms price target of $304.29 implies 47% upside potential.

Analyst price targets range from a low of $212 per share to a high of $466 per share.

Investor Sentiment Mostly in Decline

Investor sentiment, however, seems to be turning against Meta Platforms.

The biggest indicator against Meta right now is clearly insider trading. Insider transactions have been heavily weighted to the sell side for the last year. The last three months have been a moderate improvement but are still heavily sell-based.

For the last year, sell transactions led buy transactions by 193 to 36. The last three months are visibly better, however, with sell transactions leading buys 19 to nine.

The TipRanks 13-F Tracker, meanwhile, shows that selling is also a big position for hedge funds. Hedge funds continued a sell-off of Meta Platforms stock that has been going on for most of the last year now.

Hedge Funds cut their FB position by 7.1 million shares in the time between September 2021 and December 2021. They also cut their position between March-June 2021 and June-September 2021.

As for retail investors, those who hold portfolios on TipRanks showed a willingness to buy in. Those investors are perhaps the only ones particularly interested right now.

In the last seven days, Tipranks portfolios holding Meta Platforms have notched up about 0.1%. However, in the last 30 days, portfolios with the stock have added 1.9%. Meta Platforms’ dividend history, meanwhile, is nonexistent.

The Early Days of the Metaverse

Granted, virtual reality itself is nothing new. We’ve had virtual reality ever since the early 1990s and the blocky polygonal hell that was “Dactyl Nightmare.” The rise of modern computing, however, has elevated the concept substantially.

Where 30 years ago, we considered it fine advancement indeed to fire blocky projectiles at equally blocky pterodactyls, today we have such platforms as VRChat, where “blocky” is about the last word used to describe the graphics therein.

Many think that Meta Platforms is the generator of the Metaverse, but that’s an incomplete definition at best. The Metaverse commonly includes a range of platforms, not just Meta’s own, but it also includes such things as Minecraft and Roblox (RBLX).

Essentially, if you’re confused about just what the Metaverse is, remember this; no one really knows. It’s still under construction. Trying to define it is like trying to define a lump of clay before it’s worked.

Meta Platforms, meanwhile, looks to be one of the biggest players therein, and with good reason. This is potentially where the concept of widespread virtual reality starts up in earnest, and Meta Platforms is eager to land a stake in that startup early on. Corporations are also eager to get a slice of Meta.

Not so long ago, I talked about Wendy’s (WEN) and its ambitions therein, which featured basketball games played with a Baconator. Nike (NKE) is moving into the Metaverse as well, with lawsuits aimed at stopping the unauthorized trade of its shoe images as non-fungible tokens (NFTs). Disney (DIS) is working on a package of its own for the Metaverse frontier.

Yet, Mark Zuckerberg plans to continue frantically spending on Metaverse development. So much so, in fact, that Meta’s Reality Labs division currently has about 17,000 employees on the payroll, and the division lost about $3 billion last quarter. Not “as of” last quarter, but just in that quarter.

The demand is there. Major corporations don’t start coding entire environments for something they figure will fizzle out and boil off into a cloud of short-term fad. They’re expecting this to likely become a big part of the frontier, and they want to have a piece of that action.

Concluding Views

The good news about Meta Platforms is that it’s clearly a long-term proposition. All of these upswings and downdrafts we see today will likely end up as patterns of growth later on. Great, but that growth is still likely a long way off. Years, perhaps. Potentially, decades.

Right now, it would be easy to say that Meta Platforms is at a solid entry point position. It’s below even its lowest price target and offers a substantial slice of upside potential. If Meta ultimately becomes the leading platform in the Metaverse, this could put it in an excellent position.

If the Metaverse ultimately takes off the way some expect—or perhaps, hope—it will, a position in Meta today could be a position in the biggest virtual reality platform of tomorrow. The sheer amount of insider selling may leave some unnerved, but they’re likely responding to short-term trends as opposed to longer-term matters.

I’m bullish on Meta because it may be a speculative buy with a very long-term payback. However, it’s also a speculative buy with a massive potential payoff. This is one for the very patient and the adventurous at the same time.

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