Stock Analysis & Ideas

Meta Platforms: Attractive Risk/Reward; Headwinds Overblown

Shares of Meta Platforms (FB) have slowly trended lower after its disastrous earnings report that shed light on the slowdown in DAUs (Daily Active Users). CEO Mark Zuckerberg was quick to point the finger at TikTok, with more of his attention now seemingly focused on far-fetched metaverse initiatives.

It’s a confusing situation for shareholders, to say the least, with the stock shedding around half of its value from peak to trough. At $216 and change per share, FB stock looks to have regained its footing ahead of rising rates. At around 15 times trailing earnings, the once-beloved FAANG stock now looks to be one of the cheapest tech stocks in this market.

Facebook has more than its fair share of haters, but the company itself still seems to be standing on firm ground. Social-media rival TikTok has become evolved to become one of the more popular platforms among young consumers in recent years.

Still, FB investors need not fear, given this is not the first time that Zuckerberg’s empire has faced intense competition. With the stock at these depths, I remain incredibly bullish.

Can Meta One-Up TikTok?

Meta’s ability to replicate the success of its peers is a moat source in my books.

The company’s Reels feature appears to be a direct answer to rising competitive pressures from the likes of a TikTok. While the success of the Reels feature has been limited thus far (a lot of TikTok content has been moved over to Reels), it may not take much for the social-media powerhouse to retake the lead as it looks to beckon younger users back to its platform.

As Meta Platforms funnels money into improving the feature set of Facebook to become more attractive and relevant to more youthful audiences (think those in the Gen Z cohort), the firm has also set its target on its top rival in TikTok.

Reportedly, Meta was funding a Republican firm’s anti-TikTok campaign. Such an effort could take a big stride out of the step of TikTok, as Facebook looks to play the role of one of the good guys, just a year after what can only be described as the perfect storm of negative headlines.

TikTok does not seem to be a direct competitor to Facebook at first glance. They’re very different social media platforms that cater to different types of users.

Still, the battle for user engagement has caused the two titans to clash in the social space, and Zuckerberg isn’t willing to see his empire go down without a fight.

With very deep pockets, I’d look for Zuckerberg to spend his way out of the hole TikTok pushed it into. Whether such spending turns the tides back in Facebook’s favor, though, remains to be seen.

Metaverse Euphoria Has Really Faded

Zuckerberg wants you to view his firm as a metaverse pioneer. He’s putting his money where his mouth is, with billions being put into the effort. It’s an exciting story for sure.

However, with rates on the rise, such expensive growth stories with uncertain profitability prospects may be viewed more as a negative than a positive.

For now, Zuckerberg is putting his foot on the gas when it comes to metaverse spending. Although I’m not a fan of the hazy future the firm sees itself entering, it’s hard to argue with FB stock’s risk/reward profile, with shares trading at a ridiculous 15.7 times trailing earnings.

Many investors are confused about when the billions poured into the metaverse will pay off. For analysts, it’s tough to factor metaverse projects into a financial model.

Undoubtedly, the metaverse as Zuckerberg sees it could be more than a decade away. On the flip side, it may be right around the horizon, as various firms continue innovating on the mixed-reality hardware front.

Even if Meta’s metaverse projects don’t amount to much, the company still has an enviable social-media family of apps to fall back on. That alone makes me optimistic, even as TikTok and other rivals look to nibble away at the viewership of young consumers.

At these depressed multiples, I’d argue that any upside from the metaverse project is essentially thrown in. In addition, I think many are discounting the brilliance of Zuckerberg.

You don’t need to like the man, but his ability to see where the puck is headed next in the fast-moving world of tech ought to be respected.

Wall Street’s Take

According to TipRanks’ consensus rating, FB stock comes in as a Moderate Buy. Out of 46 analyst ratings, there are 32 Buy recommendations, 13 Hold recommendations, and one Sell recommendation.

The average Meta Platforms price target is $325.48, implying 51.3% upside potential. Analyst price targets range from a low of $220 per share to a high of $466 per share.

Bottom Line on Meta Platforms Stock

Meta Platforms is enduring one of its most challenging years to date. Rivals are getting stronger, and metaverse efforts could work against the firm as interest rates soar, while expenditures add up.

That said, the stock has already had the band-aid ripped off in one swift rip. It’s been such a painful decline that I do not think it will take much to move the needle higher again.

Indeed, many fear that DAUs could be headed much lower from here. Although many Facebook critics may desire such, I don’t think the worthy FAANG member ought to be thrown out of the basket quite yet.

The company has a lot to prove, and I have a feeling it’ll prove its doubters wrong, even in the face of a more challenging macro environment.

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