The company formerly known as Facebook, Meta Platforms (FB) is a company many investors are familiar with for its social media prowess. That’s still the vast majority of the company’s business and likely will be forever.
However, this high-profile renaming is the latest in a string of corporate strategic shifts toward the metaverse. The metaverse is a broad term used to describe virtual worlds. In some ways, most of us live in a virtual world (to some degree) already via social media. However, Meta is a company that’s now dedicated to advancing the metaverse further. That’s exciting.
As we look forward to 2022, this could be the most significant catalyst for this social media stock. I remain very bullish on Facebook for this and many other reasons. However, let’s dive into why this key shift could make all the difference as we look forward to a new year. See today’s best-performing stocks on TipRanks >>
Facebook Going Meta
Meta (going to have to get used to calling it that) is already a company with multiple business lines. Sure, there’s Facebook – the company’s key revenue driver. However, investors must not forget this is the parent company of Instagram, WhatsApp, and Oculus, among other high-growth divisions.
It appears that FB has made the metaverse its focus looking forward. The company’s recent rebranding presentation at the end of last month highlighted what the company expects to see in future iterations of the metaverse.
Essentially, Meta is looking to create virtual spaces for people to connect. Some might argue that this would have been helpful in the pandemic. Though, as we’ve seen with metaverse-related stocks such as Roblox (RBLX) of late, it appears this trend is far from over.
Roblox recently reported absolutely blowout earnings, shattering expectations among analysts who believed there would be some sort of pullback in terms of growth as we go back to our “normal” lives.
That said, the metaverse remains a red-hot space right now, and investors of all colors are jumping on anything metaverse-related, for a good reason. The crypto and NFT space have adopted the metaverse as its next vertical. Given the rise of some cryptocurrencies like The Sandbox and Decentraland, it’s hard to ignore this trend.
Of course, Meta’s size and ability to scale into this space are noteworthy. Unlike many smaller peers, Meta may be able to capture market share at an impressive rate. For investors looking at Meta as a potential winner in the metaverse race, the company’s speed of entry will be a key point to watch in the coming quarters.
Is This Just a Stunt, or For Real?
One of the key criticisms behind Facebook’s move to shift its name to Meta was that the timing was convenient. Indeed, Facebook was dealing with some rather nasty lawsuits at the time and still is. Whistleblower Frances Haugen provided testimony on various decisions, company policies, activities, and procedures at Facebook.
Changing one’s name doesn’t make these problems go away. However, it does shift the public discourse to something more favorable. Accordingly, some have speculated that this shift was already underway, and Facebook CEO Mark Zuckerberg was simply looking for a distraction. Fair enough.
There’s still some ill-will among investors looking at Meta’s social media operations right now. Some argue the company needs to do more to push out hate speech and improve the company’s corporate culture. Others suggest Facebook is submitting to the political left, choosing to push out free speech. As the intermediary on high-profile issues, Facebook is often stuck in the middle and can’t win.
Overall, it appears this strategic shift is a positive one. Whether meant as a distraction or not, it gets investors focused on what could be the future for Meta. That’s a good thing for shareholders. Assuming these legal matters get sorted out in due course, as they should, everyone can come out a winner out of this situation.
What Do the Numbers Say about Meta?
Okay, enough about the semantics of the Facebook/Meta discussion. Let’s dive into the numbers.
Meta released its Q3 results on November 1, beating analyst expectations handsomely. Revenue was up by 33%, coming in at $29 billion with an EPS of $3.22, up 19%. These numbers beat analyst projections by $0.04. A small win, but still a win.
Notably, free cash flow for the company is at around $9.5 billion – a record for Meta. This has made for a rather attractive valuation multiple when investors look at free cash flow metrics. Indeed, when thinking about whether Meta can really make a big splash in the metaverse, free cash flow is where it’s at. This is a company with a massive war chest that’s growing every quarter as the company’s core Facebook business prints money.
Now, FB stock did drop after this earnings report, mostly on negative sentiment tied to the company’s legal battles. This earnings beat also wasn’t a blowout. Additionally, suggestions that the company would be investing a ton of cash into a new segment have some investors concerned about how well their money is being spent.
However, overall, the company’s core business is performing exceptionally well. Compared to its peers, Meta is a company that’s looking very attractive right now.
Wall Street’s Take
Turning to Wall Street, FB stock earns a Strong Buy consensus rating. Out of 36 analyst ratings, there are 29 Buys, six Holds, and one Sell rating.
The average Meta Platforms price target of $405.59 implies 21.5% upside potential. Its higher price target stands at $466, while its lower price target is $300.
Indeed, taking into account the law of increasing numbers, the growth rate of Facebook will slow down. This is evident from reports showing 6% growth in monthly active users during Q3, down from 12% in the same quarter in 2020.
However, considering the opportunities and scope for Meta in the metaverse, coupled with significant free cash in hand, it’s hard to remain anything but bullish on this stock, taking a long-term perspective.
Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article.
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