Stock Analysis & Ideas

Meta Platforms: Fallen FAANG Stock, Potential Deep Value

It’s easy to hate the social-media powerhouse Meta Platforms (FB) following its tough quarter and uncertain growth strategy moving forward. Undoubtedly, investors want the certainty of solid, growing earnings, not a hefty expenditure on an effort that some skeptics may view as a pipe-dream.

Indeed, Mark Zuckerberg’s plans to build the metaverse are exciting. With rates on the rise, though, investors want to see earnings and enhanced margins, not a new story that has a haze of uncertainty clouding its profitability prospects. Few people can really tell you what the “metaverse” actually is at this juncture. Is it a virtual reality (VR) world like the Matrix that we’ll spend more time in than the real world? Or, is it merely a viewing medium we’ll spend maybe an hour using at a time?

Incredible Growth Stories No Longer Enough to Keep Stocks Propelled

Zuckerberg and the “Metamates” (Meta employees) have new guidelines laid out. They envision a future where the former scenario is the future. Still, the latter scenario seems likeliest, at least to start, given the number of experiences and hardware capabilities is unlikely to reach a level of success that replaces time spent on smartphones overnight.

That’s why Meta’s new growth plans are so risky. However, the potential rewards? They’re very high as well for those willing to take on said risks. Meta is spending $10 billion on metaverse development, and it’s likely just the start. The real risk is what happens if Meta doesn’t get the bang for its buck after most of such initial efforts are complete? Does the firm pull the plug on its metaverse ambitions? Or, should it double down?

The answer is not clear, and the future of the metaverse is also a question mark. There’s no denying that Zuckerberg is a man who’s more than willing to make aggressive moves to reinvigorate his firm to rejoin the likes of the FAANG cohort. For now, though, the stock and its market cap are in free fall. The $561 billion market cap no longer puts it in the league of some of its multi-trillion-dollar rivals atop this market.

As the stock sags and the market cap shrinks, though, perhaps Meta can get busy on the M&A front without having anti-trust regulators on its back, as it looks to bolster its metaverse arsenal, which frankly may not even be the best of its FAANG peers right now.

Metaverse Hopes Shouldn’t Draw Away Focus from Meta’s Family of Apps

While metaverse ambitions are a nice thing to have for a story stock, Meta remains a firm that’s seeing its social-media business feel immense pressure. The metaverse could pay off in five, 10, or 15 years down the road. In the meantime, Meta has serious issues with its family of apps, as users flock to competing social-media offerings like TikTok and Snap (SNAP).

I’m a fan of Meta’s metaverse plans. Still, until Meta can get its family of apps, specifically Facebook, sailing in the right direction again, I would view Meta as more of a Facebook or Instagram, even though Zuckerberg wants investors focusing on the future rather than the past and present.

The present is not looking so great for the firm. If daily active user (DAU) trends at Facebook don’t show signs of reversing, I’m afraid the future may not be nearly as bright as Zuckerberg expects.

Although there are a lot of headwinds facing the firm, I remain bullish on the stock. Even if its days of enviable operating margins and robust growth are over, the stock is still absurdly cheap here at 15 times trailing earnings. If that’s not cheap, then I don’t know what is.

Yes, Meta wants you to see it as a metaverse company; but I’m going to continue to view it as Facebook, the social-media company with the same problems it had before it decided to change its name.

Wall Street’s Take

Turning to Wall Street, FB stock comes in as a Moderate Buy. Out of 44 analyst ratings, there have been 32 Buys, 11 Holds, and one Sell recommendation assigned in the past three months.

The average Meta Platforms price target is $332.14, implying an upside of 53.4%. Analyst price targets range from a low of $225.00 per share to a high of $466.00 per share.

The Bottom Line on Meta Platforms Stock

There are serious headwinds ahead, but how many of them are baked in? Also, is there a way for Facebook to pivot after the recent blow by Apple (AAPL) and its privacy changes?

The valuation suggests Meta is a value trap that could bleed DAUs from here. The metaverse story is nice and all, but it’s not going to be what puts a bottom in the stock over the medium term. The family of apps could face pressure from rising competition.

Fortunately, Meta has potential levers to pull. The company has been imitating rivals, with Snap-like Stories and TikTok-like Reels. With potential acquisitions thrown in, I do think the company can stop the bleeding.

Given the firm’s reputational damage and hefty metaverse spend, though, it’s tough to tell when FB stock will put a bottom in. Regardless, the stock seems more of a great value than a value trap to me. Though, the cheap multiple will come with its share of baggage.

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