Meta Stock Craters 20%+: Deep Value Clouded by Mounting Headwinds
Stock Analysis & Ideas

Meta Stock Craters 20%+: Deep Value Clouded by Mounting Headwinds

Story Highlights

Meta Platforms stock collapsed over 20% following a rough Q3-2022 report. As investors continue to turn against the firm whose head may be too deep into the metaverse, Meta stock could find itself in deep-value territory.

Shares of Meta Platforms (NASDAQ: META) are down over 20% in today’s trading session so far following the release of some quarterly results that investors found tough to swallow with a side of downbeat guidance. The plunge came after an already terrible day that saw the stock crumble 5.6%. With negative momentum accelerating, questions linger as to how CEO Mark Zuckerberg can stop the bleeding as the hard-hit firm runs into macro headwinds and new policies from Apple (NASDAQ: AAPL) that could further weigh it down.

After this week’s catastrophic drop, I think the fear and panic surrounding Meta stock is overblown. There’s a lot of bad news that’s come in quick for Meta investors. However, for an already battered stock to shed another 20%+ in a day seems a tad absurd. I remain bullish on Meta stock, as the stock looks to command a single-digit price-to-earnings (P/E) multiple — something that would have been unheard of just a year ago!

Metaverse Bets Weigh Down Meta Stock

For Meta (formerly Facebook), when it rains, it storms. Right now, Meta stock is in the midst of a hurricane, as investors cringe at the billions in losses racked up by its bold metaverse bets. Costs and expenses grew 19% year-over-year to $22.1 billion, thanks in part to $3.7 billion worth of losses from Reality Labs (the metaverse segment).

In an era of rising interest rates, such jaw-dropping expenditures seem to be viewed as kryptonite by investors. Making matters worse, former Oculus top boss Palmer Luckey recently slammed Zuckerberg’s metaverse, calling it “terrible” and noting that he did not find it fun. Despite such harsh commentary, Luckey does think Meta still has a chance to improve its form of the metaverse.

Undoubtedly, Meta is still in the very early innings of its metaverse journey. It may not be ready for mainstream audiences today. However, in due time, things can improve at a rapid rate. Zuckerberg is hoping for such as he continues to push into new digital frontiers.

After nearly $4 billion spent on the metaverse, investors are ready to jump ship, bailing on Zuck’s metaverse ambitions. Activist investor Brad Gerstner recently wrote an open letter to the firm, urging it to cut 20% of staff and cap metaverse expenditures to $5 billion per year.

Indeed, Meta stock could have considerable upside if it gave into such demands. With Meta’s headcount to remain flat for the fourth quarter, it seems like few can entice Zuckerberg to pull the brakes. It is tough to convince a visionary founder to go against his intuition, even if there are red flags raised by intelligent investors.

Apple Delivers Another Heavy Punch to Meta

Apple delivered many a stiff jab to Meta’s chin when it rolled out privacy-focused updates. Now, the iPhone maker is ready to deliver the second punch of what seems to be a one-two combo. New policies at Apple’s App Store are calling for a 30% cut from promoted social posts or “boosted ads.”

Undoubtedly, such a policy change could have Meta on the ropes, with few, if any, punches to throw back at Apple. Indeed, Apple is a mighty company that can wreak havoc with such simple changes.

Though it’s unclear how much of an impact Meta’s bottom line will feel, the bad news could not have come at a worse time. Although there’s not much Meta can do, as Apple looks to gain a cut of its profitable ads business, I do think Meta’s tech talent is more than capable of adapting via innovation.

Meta Looks to Fend Off Competition from TikTok

As Meta continues to weave past punches thrown by Apple, the firm will need to continue fighting off rival social-media firm TikTok. Though third-quarter revenue came in below estimates, Facebook managed to grow its daily active user (DAU) count by 16 million users (nearly 1%) quarter-over-quarter.

As the company continues bringing forth intriguing new features (think Reels) while more people seek cheaper (free in the case of Facebook) entertainment options to cope with difficult economic times, fears of a Facebook DAU free-fall may be put to rest. With almost two billion DAUs, it’s tough to see how the firm could reignite meaningful growth.

In any case, Zuckerberg remains “pleased” with levels of engagement with features like Reels. Indeed, Reels may be more critical for Meta’s turnaround than the metaverse at this market crossroads.

Is META Stock a Buy, According to Analysts?

Turning to Wall Street, META stock comes in as a Moderate Buy. Out of 36 analyst ratings, there are 24 Buys, nine Holds, and three Sell recommendations.

The average Meta price target is $151.24, implying upside potential of 49.36%. Analyst price targets range from a low of $105.00 per share to a high of $240.00 per share.

Conclusion: The Value is Getting Deeper

At around 10x trailing earnings, Meta stock has a lot of baggage already baked in. Hefty metaverse expenditures may not translate into much over the nearer term. However, I think there’s a good chance that Meta could trim metaverse expenditures and headcount in the new year as firms from across the board succumb to recession pressures.

For Meta, cutting back on the metaverse could be met with a rally. In the meantime, the company has its hands full as it looks to turn a corner from a horrific decline that may yet be over.

Despite the pressures, investors are getting a cash cow of a firm (less than 8.5x cash flow) that still has the tools to stage a recovery. Sure, Meta stock may be hated, but issues investors are throwing in the towel over are fixable.

At the end of the day, Meta is flush with cash and cash flow. With around $41.77 billion of cash & equivalents on the balance sheet as of September’s end, perhaps investors are over-worrying about its metaverse expenditures. Indeed, it would be nice if Meta answered the calls of activist investors by pulling the brake on spending ahead of a recession.



Price Change
S&P 500
Dow Jones
Nasdaq 100

Popular Articles