Stock Analysis & Ideas

Meta Platforms Stock: Has the Narrative Negatively Changed?

Shares of Facebook parent Meta Platforms (FB) shocked the world when it delivered some quarterly results that were full of things to be concerned about. Undoubtedly, the company was hated by many going into the quarter, given a past year full of backlash. With potential dents in the armor revealed in the latest round of financial results, investors may finally have reason to hate the stock as well.

The million-dollar question for dip-buyers, though, is whether investors hate the name too much such that there’s compelling value to be had by going against the grain here. While I’m all for buying while others are hitting the panic button, there was a lot of hair in Meta’s latest quarter.

Between the Apple (AAPL) iOS privacy update, which could take a $10 billion bite out of its top line this year, weakness in daily active users, hefty metaverse investments, and continued backlash from users, Meta faces the perfect storm of headwinds and unknowns.

Despite the recent valuation reset, investors need to ask themselves if the ailing stock is worth picking up amid its painful fall from grace.

Meta Stock: Bargain or Value Trap?

The future could not be more uncertain from the company that seeks a change of face. Indeed, it may take more than just a name change for investors to warm up to Facebook and Meta again. The reputation was stained again in 2021 with the whistleblower testimony. As expenses stack up from the company’s pricey metaverse ambitions, the magnitude of risk has been raised substantially.

With such a low earnings bar and a deeply-discounted multiple (FB stock trades for an absurd 16.6 times trailing earnings at writing), though, the bulls have the right to be pounding the table on the dip. After all, the company is still wildly profitable, and for that reason, it should be (mostly) spared from the latest tech sell-off.

Despite the growing list of negatives and headwinds, I remain neutral on FB stock. It has such a hated stock that it’s tough to be bearish alongside everybody else, especially in such deeply-oversold conditions, even if the future is the cloudiest it’s been in a long time.

Meta’s Numbers Left Investors in a Bad Spot

I’m all for buying a company after tumbling following a quarter plagued by nearly-unreachable year-over-year comparables. That said, Meta’s quarter also revealed some cause for concern, such that the narrative may be changed for the worst. The last thing investors want to be holding is a stock that’s finally ready to suffer a massive fall from grace that sees revenue growth and margins fall off a cliff.

Meta stock has always traded at a discount to its peer group, but could it be that the once-cherished FAANG stock is ready to leave the group for good? The company that could have been worth over $1 trillion now finds itself sporting a market cap around $620 billion. If there’s a silver lining to the brutal quarter, it’s that anti-trust regulators will be more willing to get off the company’s back, opening the door for potential M&A opportunities.

Indeed, Meta has acquired its way to the top of the social media space.

With TikTok, a social-media rival Mark Zuckerberg remarked on following the quarterly reveal, likely picking up popularity at the expense of Facebook’s family of apps, the horizon does not look bright for the social-media kingpin that once seemed unstoppable. A big acquisition could change the narrative for the better, though, as the firm looks to bolster its line-up against TikTok and others in a more competitive environment.

In any case, Meta seems more focused on betting big on the next big thing, rather than wondering what’s up next for Facebook as active users begin to fall for the first time in 18 years.

Meta’s Change of Face Could Bring Forth Fundamental Deterioration

Indeed, Meta is incredibly ambitious with its metaverse hopes. It did turn the metaverse into a buzzword overnight, after all.

I think the firm could be too ambitious, though. Excess ambition may not be a good thing once the expenses really have a chance to add up, with nearly nothing in the way of profits to show for it. As rates rise, metaverse spending could warrant the recent valuation reset in FB stock, especially if the firm funnels more investment into its version of the metaverse.

It’s my opinion that Meta may have changed its name way too soon in the game, given uncertainties that surround when the metaverse will be ready for mainstream audiences. Perhaps skeptics were right in assuming that Facebook wanted to distance itself from recent controversy. Still, the metaverse represents a real opportunity.

In any case, I’m not too convinced that Meta’s Horizon Worlds offering is the metaverse offering to buy a VR headset for. Though further innovations, or perhaps a video-game acquisition, could change my mind.

Wall Street’s Take

Turning to Wall Street, FB stock comes in as a Moderate Buy. Out of 44 analyst ratings, there are 32 Buys, 11 Holds, and one Sell recommendation.

As for price targets, the average Meta Platforms price target is $332.14, implying an upside of 45.6%. 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 Stock

It’s hard to get behind Meta as it has declined more than 40% from its highs, and analyst downgrades have come in.

Sure, the stock seems incredibly cheap, but I do think the growth narrative has changed with metaverse expenses on the rise while user trends reverse course. Undoubtedly, things could get uglier if the first hint of daily active user decline over at Facebook is just the start of a trend. Considerable metaverse spending just raises the risk profile that much higher.

This is the moment of truth for Meta and Facebook. I think a big-league video-game studio acquisition makes a lot of sense for Meta amid recent consolidation in the space, as the firm looks to evolve from a social-media company to a metaverse powerhouse. Such an acquisition could lead skeptics to take the company’s metaverse ambitions more seriously.

As for the company’s reputation, it will be hard to repair. Meta needs to show people it can put ethics ahead of profits, all while it attempts to put a stop to negative user trends at Facebook that could be exacerbated by the “#DeleteFacebook” hashtag recently trending on Twitter (TWTR).

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