Stock Analysis & Ideas

Meta Platforms’ Family of Apps Has a Moat

Not many would have thought that shares of Facebook parent Meta Platforms (FB) would be going for close to $200 per share this year. Undoubtedly, things have gone from bad to worse for the social-media firm, as it looks to the metaverse for its next leg of growth. After a brutal quarter that saw weakness in DAUs (Daily Active Users), FB stock now finds itself down over 38% year to date.

The Apple (AAPL) updates are finally working their way into Meta’s top line, and Zuckerberg wants to fire back. Indeed, the next frontier after smartphones seems like it could be the “metaverse” or some sort of virtual world similar to the one in the Matrix film where people live their lives in the realm of the digital.

Zuckerberg is more than willing to funnel considerable sums of cash on the effort, even if it’s still years, if not over a decade, off.

Meta’s Probably Not the Best Metaverse Play

Indeed, sometimes a firm needs a roll of the dice to offset ominous trends to become more relevant. However, is the metaverse really an environment where a firm like Facebook could create an Apple-like ecosystem?

Like it or not, Apple has a pretty good reputation with users, given it’s taken the role of the good guy in the recent privacy fiasco. Even if Meta was to build the next big thing, the company needs to do more than just change its name to shed its controversial reputation.

For now, Zuckerberg’s version of the metaverse seems incredibly abstract. After having seen Meta’s metaverse presentation, I’d argue that it’s even more confusing and abstract than the one Microsoft (MSFT) is hard at work on. With a dominant gaming business, Microsoft has the onramp it needs to make a splash in the metaverse.

If I were to place a bet, I’d say that Apple and Microsoft will be the firms to create the hardware and software needed to power the metaverse, not Meta. Indeed, investors are heavily discounting Meta’s metaverse ambitions. If you value it based on expensive uncertain projects, then sure, Meta stock may deserve to have tanked, given the trajectory of its Facebook.

Focus on the Family of Apps

Undoubtedly, Meta’s Family of Apps isn’t looking quite as “moaty” as it did going into the firm’s latest quarter. Although I’m a massive fan of the dirt-cheap valuation (~15 times trailing earnings on FB stock), I do think that some sort of relative discount to its peers in the FAANG basket is warranted.

That said, I believe the discount that currently exists is greatly exaggerated. Yes, Meta may not be the best metaverse company, but it’s still a social-media firm with staying power. Facebook has a minor dent in its armor, but its stock price and magnitude of the recent sell-off seems to suggest that its armor has been demolished—hardly the case.

Now, I’m no fan of buying Meta for the metaverse. If anything, I’d much rather Meta buy a video-game company than spend more than $10 billion on R&D to develop worlds that many may be reluctant to plug into once the metaverse is ready for the average consumer.

At the current price of admission, I am a fan of the Family of Apps businesses. They probably have more staying power than you’d expect, and I do think they can keep profits elevated, even as metaverse expenditures get out of hand.

Facebook: It Still Has a Sizeable Moat

TikTok and Snap (SNAP) have been hitting a spot with younger audiences. Indeed, it’d be nice if Facebook were appealing to such a crowd again. Regardless, older social-media users still flock to Facebook, and they will keep the platform from free-falling into the abyss.

If anything, the older crowd could be a key moat source that many may underestimate. Remember, it’s harder for older users to be convinced to learn and try a new software platform.

Instagram is more appealing to younger audiences, and it’s far from entering free fall. Sure, people hate Facebook from a moral perspective, and Zuckerberg isn’t too convincing with his metaverse ambitions. Looking past that, though, is a great, profitable business that is capable of turning a corner, even as it hedges its bets with VR and AR innovations.

Wall Street’s Take

Turning to Wall Street, FB stock comes in as a Moderate Buy. Out of 45 analyst ratings, there are 31 Buys, 13 Holds, and one Sell recommendation.

The average Meta Platforms price target is $332.07, implying an upside potential of 60.3%. Analyst price targets range from a low of $225.00 per share to a high of $466.00 per share.

The Bottom Line on FB Stock

Mark Zuckerberg wants you to get excited about the metaverse. Ultimately, it’s all about valuing Facebook and the Family of Apps for the time being. Not to dismiss the metaverse as a pipe dream, but I view it as more of an extremely long-term effort (think 10 years out) rather than one meant to change the medium-term narrative.

While recent weakness at Facebook may be the first sign of a sustained downward trend, I’m inclined to believe that recent weakness is more of a blip.

Facebook is still wildly profitable. Sure, the firm has a bad reputation. As a result, many may wish to see the company fail. Despite this, I don’t see Meta in any sort of existential crisis, even if its metaverse push suggests a leap of desperation to some skeptics.

In actuality, Meta’s business is still quite robust and may be nearing deep value territory. Analysts are lowering the bar on growth, but moving forward, you’re still getting a respectable amount of earnings growth for an absurdly-low valuation.

For now, I’m valuing FB stock like Facebook, not Meta Platforms. I’m in the belief that the firm’s name change came 10 years too early.

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