Reconciling Meta's 50% Sell-Off

Extreme Bearishness

Facebook, recently rebranded as Meta Platforms Inc. (FB), is down 52% from its September 2021 high and now sits at a 52-week low. The recent downturn came after the company reported its quarterly earnings back in February. The stock downturn was related to capital investment in its metaverse initiatives, concerns from growing competition via Snap and Tik Tok, and the ongoing privacy changes by Apple.

Meta is placing the future of the company’s growth and end markets in the metaverse space. Meta’s collective platforms via Facebook, Instagram, WhatsApp, and Oculus will continue to drive growth while the metaverse is built out and overlaid across these platforms. The recent 50% reduction in the company’s valuation places Meta in very inexpensive valuation territory and, relative to its technology peers, one of the cheapest high-growth stocks. With a firm pivot towards future end markets via the metaverse along with its social media prowess, its valuation is very appealing at this juncture.

Wall Street’s Bullish Sentiment

Analysts across the board are seeing the current levels as a very attractive point to accumulate Meta shares for long-term appreciation. KeyBanc Capital Market’s Justin Patterson, “Meta still offers attractive returns right now to investors, and there isn’t much downside from these levels,” “payoff potential for Meta is really good provided they can execute its plans to grow the Metaverse.” “Meta has historically managed these transitions before and come out stronger,” Patterson wrote.

Wells Fargo’s Brian Fitzgerald issued a $350 price target on Meta and is confident in its pivot towards the metaverse. “The stock is likely to bounce around the bottom for a little bit until the company can prove they are fixing things, which may take a couple of quarters,” Adding that, the stock is the “cheapest it has ever been, cheaper than all of the big tech stocks right now.”

Ygal Arounian from Wedbush said that Meta “has not passed its peak and on a valuation basis the stock looks pretty attractive right now.”

Shark Tank personality and venture capitalist Kevin O’Leary believes “now is the time to own the stock,” “This is the bottom, this is where you want to accumulate.” O’Leary said Meta is addressing investor concerns and trying to address its issues with TikTok and regulatory changes.

Evercore’s Mark Mahaney believes that Meta is working to solve its problems and said the current issues are “priced into FB shares.” Mahaney said he sees value in the stock at its current levels and a “highly attractive reward-risk framework for investors with a 9-12 month outlook.”

Hightower Advisors’ Stephanie Link. “The stock won’t make you money in the first half of the year, but in the second half... I think you’ll make money.”

The Metaverse

Meta is striving to be a leader in the nascent metaverse, the intersection of virtual reality, augmented reality, three-dimensional video environment, and an all-encompassing virtual environment. It's a combination of multiple elements of technology, including virtual reality, augmented reality, and video, where users "live" within a digital universe. Supporters of the metaverse envision its users working, playing, and staying connected with friends through everything from concerts and conferences to virtual trips around the world. Mark Zuckerberg estimates it could take five to ten years before the key features of the metaverse become mainstream. But aspects of the metaverse currently exist. Ultra-fast broadband speeds, virtual reality headsets, and persistent always-on online worlds are already up and running, even though they may not be accessible to all.

Meta has already made significant investments in virtual reality, including the 2014 acquisition of Oculus. Meta envisions a virtual world where digital avatars connect through work, travel, or entertainment using VR headsets. Zuckerberg has been optimistic about the metaverse, believing it will be the next evolution of the internet or could replace the internet as we know it. "The next platform and medium will be even more immersive and embodied internet where you’re in the experience, not just looking at it, and we call this the metaverse," said Meta CEO Mark Zuckerberg

Social Media Goliath

Meta will continue to demonstrate its ever-expanding and massive moat in the social media space. Meta’s core social media platform (Facebook), in combination with its other properties such as Instagram and WhatsApp, continue to grow while expanding margins and unlocking revenue verticals.

Despite being faced with several public relations challenges over the past couple of years (i.e., Cambridge Analytica, coordinated boycotts, government inquiries into privacy, jumbled earnings calls, anti-competitive testimonies, and the recent internal release of sensitive information suggesting profits supersede safety), Meta has triumphed to all-time highs after each event. In conjunction with the public relations issues, Meta had to contend with scaled back advertising spending amid the COVID-19 pandemic.

Meta continues to grow across all business segments, with its user base continuing to expand slowly. Meta’s moat is undeniable, and any meaningful sell-off like the recent public relations-induced weakness could provide an entry point for the long-term investor.

Valuations and Inexpensive Stock

Meta has over 3.2 billion monthly users across its platforms (Instagram, Messenger, and WhatsApp); the company is actively engaged in expanding margins and creating additional revenue verticals.

From a valuation standpoint, the company is inexpensive, especially after the 50%-plus sell-off from its all-time highs. Facebook has a P/E ratio of 13 and a PEG ratio of 1.4 compared to Amazon (AMZN) with a P/E and PEG of 44 and 1.2, respectively, Google (GOOGL) with a P/E of 21 and PEG of 1.1, Microsoft (MSFT) with a P/E and PEG of 29 and 1.8, respectively and Apple (AAPL) with a P/E and PEG of 27 and 2.6, respectively. Meta’s PE and PEG ratios are nearly the lowest among all big technology names and indicates that its growth relative to value is the best-in-class.

Conclusion

Meta strives to be a leader in the nascent metaverse, the intersection of virtual reality, augmented reality, three-dimensional video environment, and an all-encompassing virtual environment. Meta possesses a very inexpensive valuation relative to its technology peers (Apple, Amazon, Google, and Microsoft) and is one of the cheapest high-growth stocks. With a firm pivot towards future end markets via the metaverse along with its social media prowess, its valuation is very appealing at this juncture.

In the backdrop of the company’s pivot into its next frontier, Meta has over 3.2 billion monthly users across its platforms (Facebook, Instagram, Messenger, and WhatsApp) that the company is actively engaging to expand margins and create additional revenue verticals. Meta continues to post unparalleled growth for a company of its size while its platforms are still the go-to properties for advertisers and influencers. The recent 50%-plus pullback may be a good opportunity for long-term investors, with its future growth being potentially supercharged via the metaverse.

Noah Kiedrowski
INO.com Contributor

Disclosure: Stock Options Dad LLC is a Registered Investment Adviser (RIA) firm specializing in options-based services and education. There are no business relationships with any companies mentioned in this article. This article reflects the opinions of the RIA. Any recommendation contained in this article is subject to change at any time. No recommendation is intended to constitute an entire portfolio. The author encourages all investors to conduct their own research and due diligence prior to investing or taking any actions in options trading. Please feel free to comment and provide feedback; the author values all responses. The author is the founder and Managing Member of Stock Options Dad LLC – A Registered Investment Adviser (RIA) firm www.stockoptionsdad.com defining risk, leveraging a minimal amount of capital, and maximizing return on investment. For more engaging, short-duration options-based content, visit Stock Options Dad LLC’s YouTube channel. Please direct all inquires to [email protected]. The author holds shares of AAPL, ADBE, AMD, AMZN, ARKK, AXP, BA, BBY, C, CMG, CRM, DIA, DIS, FB, FDX, FXI, GOOGL, GS, HD, HON, INTC, IWM, JPM, MA, MS, MSFT, NKE, NVDA, PYPL, QQQ, SBUX, SPY, SQ, TMO, TWTR, UNH, V and WMT.

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