Stock Analysis & Ideas

META Stock: Highly Attractive, but Not Because of the Metaverse

Story Highlights

Meta Platforms stock has been down and out as investors sour on the firm’s metaverse ambitions. With a solid product to counter TikTok and new AI features that could reverse declining DAUs, the stock seems too cheap to ignore.

Shares of Meta Platforms (META) have settled into the $150-170 range in recent weeks. Though the metaverse as we know it may arrive sooner than we think, questions linger as to whether Meta will even be a major player once the virtual and augmented worlds of tomorrow arrive.

Indeed, Zuckerberg’s ambitious comments about the metaverse and the billions to be made are encouraging. However, the company has more than its fair share of critics, as it loses money on VR hardware and software projects. Currently, Meta is a leader in the headset race, but that could change once Apple (AAPL) unveils its premium mixed-reality headset.

Although Meta is covering bases at the high- and low-end of the VR markets, with its Oculus Quest and Pro tiers, Apple could leapfrog over Meta in terms of headset dominance.

If it can repeat the success it had with the iPhone, then Meta’s VR ambitions could come crashing down almost as hard as its stock has over the past few months. Nonetheless, I am bullish on META stock because of its low valuation and social-media dominance.

Also worth noting, META stock scores a 7 out of 10 Smart Score rating on TipRanks. This is on the high end of “neutral,” indicating that the stock may perform slightly better than the market, going forward.

Meta is a Great Buy, but Not for the Metaverse

Given competitive risks and the firm’s tarnished reputation, I’d argue that the days of Meta’s VR market dominance could be numbered. It’s not just Apple that’s joining the VR race. Many other big tech players want a slice of the pie. In any case, it’s Apple that poses the greatest risk to Meta as the next frontier of hardware rolls out over the next decade.

Although I’m no fan of Meta’s VR strategy and ability to stave off rivals, I do think META stock is a Buy for its robust social-media business.

Zuckerberg recently issued a dire warning about a recession. Ad sales could take a hit, even as user engagement recovers. Still, it’s hard to pass up on the stock, with a mere 4x sales and 12.7x trailing earnings multiple. That’s cheap, even if Meta finds itself on the receiving end of technological disruption.

Meta is More than Capable of Firing Back at TikTok

Meta’s Family of Apps business is an intriguing cash cow that may have many years left of growth in the tank. Though Facebook’s negative daily active user (DAU) trend signals the beginning of the end, I’d argue that Meta has more than enough tools to engineer another leg of growth, even amid rising competitive pressures from TikTok.

TikTok is an incredibly popular platform among younger consumers. However, it doesn’t have a unique product that a deep-pocketed rival like Meta can’t replicate or even improve upon. Reels is Meta’s answer to TikTok, and thus far, it’s been an underwhelming response.

As the company invests heavily in AI-driven algorithms, I think more content will originate on Reels. As I noted in a prior piece, Instagram users are embracing Reels. Over time, the platform will get more content, and the content will likely be better catered to users.

Further, Meta may get a solid boost should the federal government decide to take action to make firms like Apple ban the Chinese-owned TikTok app from its App Store. U.S. communications regulators would love for TikTok to be taken off app stores. However, it may prove difficult to push the tech titans to ban TikTok due to the potential for data spying.

Thus far, Apple has yet to consider removing the app. TikTok noted it has never provided any U.S. data to Chinese regulators.

In due time, though, there’s a non-zero possibility that TikTok will go the way of Flappy Bird in America. Such a move would greatly boost Meta and its growing Reels platform.

Even without help from the government, Meta’s Reels seems like a worthy competitor that’s able to leverage users on its other social-media apps.

Wall Street’s Take on META Stock

Turning to Wall Street, META stock comes in as a Moderate Buy. Out of 38 analyst ratings, there are 29 Buys, eight Holds, and one Sell rating.

The average Meta price target is $269.19, implying upside potential of 57.5%. Analyst price targets range from a low of $180.00 per share to a high of $466.00 per share.

The Bottom Line on Meta Platforms

Meta Platforms is likely a great deal for those seeking solid earnings growth over the long run. Between TikTok and Reels, I’m a bigger fan of Reels, especially as regulators set their sights on TikTok.

If Meta wasn’t pouring billions into the metaverse, I’d be an even bigger fan of the stock here. Metaverse NFTs and other digital goods are no longer enough to get investors excited about the stock; they want to see progress regarding Meta’s Family of Apps. In due time, I do think investors will get what they want.

Though I’m unenthused by Meta’s VR push, it’s hard to deny the power of its Family of Apps, which, I believe, has staying power.


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