Stock Analysis & Ideas

Meta Stock: Sheryl Sandberg Leans Out; Will Investors Lean In?

Story Highlights

Meta Platforms stock again fell under pressure, as legendary executive Sheryl Sandberg announced her departure. With a recession on the horizon, can Reels and metaverse bets help put a bottom on the price action?

The magnitude of uncertainties couldn’t be great for Meta Platforms (FB) stock, with Sheryl Sandberg departing the company ahead of an ambitious push into the metaverse.

Sandberg has also reportedly sold around $1.7 billion worth of FB stock over the past decade. Indeed, the legendary executive’s departure is not a vote of confidence as CEO Mark Zuckerberg looks to pivot his firm to become a major player in the virtual worlds of the future.

Indeed, the metaverse remains abstract to most consumers who’ve yet to put on a virtual-reality headset. Meta’s Horizon Worlds is off to a great start, with incredible growth since its launch — the platform surpassed 300,000 users in February. However, questions linger as to how considerable investment spending will translate into returns for investors over the long haul.

On TipRanks, FB scores a 7 out of 10 on the Smart Score spectrum. This indicates a potential for the stock to perform in-line with the broader market.

Meta Going All-In on the Metaverse?

On June 9, Meta is poised to make it official, as its ticker symbol changes to “META” from “FB.” It’s the beginning of a new era, one that could see a low-to-mid teens price-to-earnings (P/E) multiple be the new normal for the stock.

Rising interest rates and a distaste for forward-looking growth have made FB stock a giant question mark. It’s hard to factor in distant metaverse investments into a financial model, making the evaluation of the firm the most difficult it’s ever been. Undoubtedly, investors need to trust Zuckerberg at this critical pivot point.

For now, the metaverse is a wildcard that may or may not pan out how Zuckerberg expects it to. Despite making it official, with the new name and ticker symbol, Meta is still a social-media company, with Facebook and Instagram doing most of the lifting.

Further, competitive pressures could mount on social, as the company wanders into new frontiers that could eat into cash flows from the social-media Family of Apps business. It will be tough to keep metaverse spending up if Facebook and Instagram can’t stay cash cows.

With waning DAUs (Daily Active Users) over at Facebook and intensifying competition from the likes of TikTok, things look ugly for the Family of Apps as we march slowly and steadily into a potential recession.

Despite the profound uncertainties exacerbated by Sandberg’s departure, I remain bullish on the stock. The valuation is unprecedently depressed, with the FAANG stock now trading at 14.7 times trailing earnings as of Monday’s close.

Although Facebook whistleblower Frances Haugen doesn’t see FB stock recovering until Zuckerberg leans out as well, I do view the risk/reward as incredibly attractive, regardless of who’s at the helm by year’s end.

Could a Recession Further Pressure Facebook and the Family of Apps?

Though it seems like a consumer-facing recession could weigh even more heavily on DAUs of Facebook (could Instagram be next to fumble the ball at the hands of TikTok?), it’s important to remember that the firm’s social-media products don’t cost the consumer anything, other than their data.

If anything, a recession could cause an increase in social media usage, as consumers cut into their budgets, gravitating away from pricier forms of entertainment like Netflix (NFLX).

Arguably, Facebook and Instagram may prove more resilient, come the next recession. Though recent trends aren’t promising, I think rising competition is to blame. Zuckerberg didn’t just point the finger at TikTok; he’s ready to go on the offensive with Reels to bolster user growth and engagement.

Indeed, Reels has been up to a rocky start. However, it is getting better in due time. Given Facebook’s track record of one-upping rivals with similar offerings, I think that TikTok could have a problem on its hands, as Zuckerberg sets its sights on its user base.

Ultimately, I think Reels is a magnificent response to TikTok. That said, investors and analysts will need to be patient and give Zuckerberg the benefit of the doubt. Perhaps a recession-driven spike in social-media consumption and Reels can help reel FB stock out of the gutter.

Wall Street’s Take

According to TipRanks’ analyst rating consensus, FB stock comes in as a Moderate Buy. Out of 35 analyst ratings, there are 26 Buy recommendations, eight Hold recommendations, and one Sell recommendation.

The average Meta Platforms price target is $276.88, implying an upside of 42.54%. Analyst price targets range from a low of $185.00 per share to a high of $370.00 per share.

The Bottom Line on Meta Stock

Sandberg’s exit is a significant negative that could cause many to follow her lead by leaning out of the stock. Frances Haugen is no fan of Zuckerberg. Although the Street would applaud Zuck’s departure, I do think that the stock is so depressed that it won’t take much to move the needle higher, even as a recession nears.

The metaverse may not pay off as big as Zuck thinks. In any case, the Family of Apps alone is worth owning the stock at these depths.

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