Stock Analysis & Ideas

Meta Platforms: Reality Labs a Ticket to Upside

Meta Platforms’ (FB) shares fell more than 25%, wiping out a market cap of more than $250 billion following the release of the fourth-quarter results on Feb. 2. This was also one of the biggest losses for the Nasdaq stock exchange.

The stock price slump was due to the fourth quarter 2021 profit drop and the loss of a million users on the social network, the first in 18 years, as well as disappointing forecasts for 2022.

However, the sharp drop in the share price has created a very tempting opportunity to add shares to any long-term position in the world’s largest social media platform, and one of the largest companies of all time.

In addition, there are strong catalysts that should enable the stock to recover the lost ground in the short term. As such, I’m bullish on this stock, whose share price is currently trading well below its 50- and 200-day moving averages.

In October 2021, the Menlo Park, California-based Internet content and information services giant changed its name to Meta Platforms Inc. The company was formerly known as Facebook Inc.

Q4 Earnings

In the final quarter of last year, Meta Platforms’ earnings fell short of expectations as sharp year-over-year increase in costs and expenses caused net income to decline 8% to about $10.3 billion.

Diluted earnings per share were $3.67, about 5.4% lower than diluted earnings per share of $3.88 for the same quarter of 2020, missing the median consensus estimate by $0.16.

Meta Platforms revenue instead rose to nearly $34 billion in the fourth quarter of 2021, up 20% year-over-year and beating the analysts’ median forecast by $230 million.

Year-over-year, Family of Apps’ revenue was $32.8 billion, up 20%, while Reality Labs was $877 million, up 22.3%.

From Family of Apps, the social media giant took in $15.89 billion in profits, an increase of nearly 7%. Reality Labs suffered a loss of $3.3 billion, worse than last year’s $2.1 billion loss. The unit, which has housed the company’s Metaverse efforts since October 2021, is still a long way from being profitable.

In addition, the company reported that in December 2021, the average number of daily active users (DAUs) rose 5% year-over-year to 1.93 billion, while analysts expected an average number of 1.95 billion DAUs.

The company also reported that the average number of monthly active users (MAUs) rose 4% year-over-year to 2.91 billion in 2021, but it was down 40 million compared to expectations.

Looking Ahead

Looking ahead to the first quarter of 2022, the company expects revenue of between $27 billion and $29 billion, representing year-over-year growth of 14% to 22.4%. In the first quarter of 2021, the total revenue was $26.2 billion.

The analysts have released their forecasts for Meta Platforms revenue for the first quarter of 2022. The lower estimate is $26.55 billion, the higher estimate is $30.42 billion, making the average estimate $28.49 billion.

No Joke, That’s the Outlook

Meta platforms remain the most prevalent social media in the world despite the recent slump. More than 3.5 billion users around the world use Meta Platforms services.

That number is progressing at a high single-digit growth rate quarter by quarter, delivering an operating income margin of 40% of total revenue and a record amount of free cash flow of almost $13 billion in the fourth quarter of 2021.

This data will continue to improve over time, as all of the services that have generated the American social media giant’s fortune so far and that people rely heavily on (these are Facebook, WhatsApp, Instagram, Messenger, and Oculus) all belong to the same company.

Once the market becomes aware of this undeniable fact, the stock will come back into the limelight.

Wall Street’s Take

In the past three months, 44 Wall Street analysts have issued a 12-month price target for FB. The company has a Moderate Buy consensus rating, based on 32 Buys, 11 Holds, and one Sell.

The average Meta Platforms price target is $332.14, implying 46.8% upside potential.


The recent fall in the share price is of unprecedented severity.

At the same time, it creates an incredible opportunity to increase ownership of the world’s largest social media operator, and with very clear prospects for continued growth.

Many fear TikTok’s rapid ascent, but the negative thinking will disappear as soon as Reality Labs starts turning a profit as well.

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