Meta a Bargain at $175?

Meta, previously Facebook, has had a disastrous year in 2022. The stock price plummeted to $175 USD from a high of $380 last year. Is Meta a good buy at $175, with a PE of 13.96 and an EPS of 13.39? Let’s get started!!

Monthly Active Users (MAU) for Facebook were 2.936 billion in 1Q22, up 2.9 percent per year on year, while Daily Active Users were 1.96 billion, up 4 percent per year on year. What I find encouraging about these figures is the DAU/MAU ratio, which shows that engagement is at an all-time high of 67 percent. This 67 percent DAU/MAU ratio is one of the highest documented.

However, this is the first time that the Meta has seen no growth in advertising income in the American market, with a slight loss in Europe. We must determine if the slowdown results from transitory headwinds or a fundamental problem. Is Meta exiting the growth phase of the business cycle and entering a more mature, stagnating phase? The company is also suffering greater expenditures because of their investment in Metaverse.

 

EPS has also been declining in recent quarters, and if this trend continues, it might hit $10-$11. Most managers on the conference call cited the Ukraine crisis as a cause of declining/poor results, which appeared to be a half-baked explanation. The second quarter conference call focused on stagnation, somewhat reduced projected costs, and high capital expenses. Even though Meta has a large amount of wealth and a long-term outlook (beyond 2030), as an investor, it is extremely difficult to forecast the market that far in the future, raising another warning signal.

According to the Q1 conference, meta may provide rich reward, but one thing to keep in mind is the risk. Currently, the risk-reward appears to be too dull. Meta may have a place in the portfolio, but I do not advise that it be the major position. Zuckerberg is pushing hard for Metaverse, but this has not yet established a firm foundation for the company, as major players such as Apple and Google have not discussed Metaverse in recent events. With large tech hesitant to embrace the metaverse, it is ambitious to declare that the metaverse is the next great thing that will alter the industry without the backing of big tech. Meta is experiencing stiff competition from TikTok and other social media apps, and while Metaverse might be the company’s white knight, it is a high-risk gamble that should be considered before investing in Meta. Some believe that Meta is an easy double, which may be true, but what is the investment’s risk and reward?

 

Finally, while I believe the firm will deliver a fair return to investors, this investment would not be amongst the top five positions in my portfolio. I recognize that everyone’s risk and reward tolerance varies, and this may be an ideal investment, but at a disproportionate risk and reward.