Meta is Down, here are Details
Through its Family of Apps, Meta is the parent of Facebook, Instagram, and WhatsApp (FOA). The business has also entered the metaverse, investing billions in its Reality Labs’ AR and VR experiences (RL). Even though Meta is one of the best-known social media platforms and a member of the FAANG family, its 3Q22 was a complete failure. Revenue for Meta decreased 4% year over year in the third quarter of 2012, the company’s second consecutive sequential decline. Over the same time span, net income likewise fell by 52%. When the company predicted that revenue and sales would decline even further in 4Q22, the stock plunged even lower. According to the company’s announcement, its RL, which includes its metaverse, will experience operating losses.
Meta is down, but so is the peer group
Meta and the majority of the tech peer group had a difficult year. We don’t think Meta is struggling alone; the competition is also under stress from the macroeconomic setting and declining ad spending. We think that declining ad spending has been a big contributor to Meta’s collapse. In contrast to a 14% Y/Y reduction a quarter earlier, Meta claimed that the average price per ad fell by 18% year over year in 3Q22. Not only has low advertising spending hurt Meta, but it has also hurt its rivals. Both Snapchat (SNAP) and YouTube (GOOG) (GOOGL) of Google suffered a fall in their ad revenue, resulting in disappointing results for investors.
The iOS privacy upgrade implemented by Apple (AAPL) as part of iOS 14.0 makes it more difficult for platforms and apps to monitor users through other apps and websites on their devices, which is causing Meta to see increasing churn. Dave Wehner, CFO of Meta, stated earlier this year that he thinks “the overall impact of iOS is a negative for our business in 2022.” We think that the decline in advertising spending and Apple’s privacy change hurt Meta’s Facebook and Instagram ad revenue. While the lack of advertising investment currently hinders Meta, we anticipate that the firm will be well-positioned to expand once advertising spending begins to increase due to its sizable customer base across its FoA. Family apps from Meta continue to account for a sizable portion of app usage.
The most widely used social networks are depicted in the following graph, with Meta’s Facebook, WhatsApp, and Instagram continuing to rank among the top three.
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With approximately 3 billion daily users across all of its platforms and almost 4 billion monthly users — an all-time high over the previous two years — Meta still has a sizable consumer base.
The DAP for Meta’s Family is displayed in the graph below.
What about the Metaverse?
With $27 billion in operating losses over the last three years in the metaverse sector, Meta is losing billions of dollars on its investments in the metaverse. The business is developing a variety of VR headsets, AR glasses, and related software. Many of the SeekingAlpha articles with sell ratings stress how the company’s fundamentals have altered as a result of its heavy reliance on the metaverse. We think a significant element hurting the company’s recent financial performance is the investment into the metaverse. Nevertheless, since Meta still operates one of the biggest social media networks, we don’t think its principles have altered. As AR and VR adoption are still in their infancy, we think the metaverse is a long-term investment that could act as a growth catalyst for the business moving forward.
The following graph outlines estimated users of VR/AR hardware worldwide.
We’re also more positive now that Mark Zuckerberg, CEO of Meta, has committed to “pacing” spending moving forward. We disagree that Meta’s primary sources of income — its social media platforms — should be eclipsed by the metaverse. We anticipate Meta to increase as macroeconomic challenges subside and advise purchasing the stock at the current price.
Meta Stock Performance
In comparison to its rivals, Twitter (TWTR) is up around 25%, Apple is down about 14%, Microsoft (MSFT) is down about 32%, Alphabet is down about 35%, and Amazon (AMZN) is down about 39%. Meta is down 72% YTD. Snap was outperformed by Meta by almost 79%.
In comparison to Twitter’s growth of around 160%, Apple’s of about 262%, Microsoft’s of about 178%, Alphabet’s of about 86%, Amazon’s of 85%, and Snap’s of 37% during the previous five years, Meta has decreased by about 48%. We continue to be bullish on the stock and think that it provides investors with a good entry point. The following graphs display Meta’s position in relation to its rivals over the previous five years and year to date.
Valuation is at the core of our investment
Meta is reasonably priced. In comparison to the typical peer group, Meta is presently trading at 8.8 times C2024 EPS of $10.64. In comparison to the peer group average of 4.1x on an EV/Sales basis, Meta is selling at 1.5x C2024 sales. We think that Meta’s YTD decline has turned it into a value stock, and we advise investors to buy the pullback.
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