Meta Platforms Stock: Buy the Crash, Buy the Metaverse (NASDAQ:FB)

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Meta Platforms, Inc./Facebook (NASDAQ:FB) has fallen since September last year, but essentially collapsed after the company released a disappointing earnings report in early February. Meta’s stock traded at its peak around $380 and is now below $190, representing a unprecedented drop of more than 50% in the tech giant’s share price. However, Meta remains a dominant and market-leading company in its industry and is expected to remain the most important player in the social media space.

In addition, the company is currently remarkably cheap and should continue to generate robust revenue growth in the coming years. While Meta faces slowing growth and a temporary decline in earnings per share, Facebook is expected to return to growing profitability as the company scales.

Meta earnings are imminent and the company’s stock has fallen significantly during the event. Meta could beat estimated earnings, and given the company’s huge earning potential, Meta shares seem like a great buy right now.

FB 1 year

FB stock chart

FB (StockCharts.com)

People loved Facebook for $380, and many now hate it under $190. What happened to “buy low, sell high” and buy when there’s “blood in the streets”? FB initially collapsed after it reported worst-than-expected fourth-quarter results, causing the stock to fall significantly in a record-breaking one-day market cap decline. We saw a moderate recovery in March, but stocks fell 25% just off the recent high in early April. Meta-shares are oversold again, but the stock is trying to bottom around the crucial $180-190 support. We also see the Full Stochastic moving higher, implying a possible change in momentum in the chart. Facebook has essentially returned all of its profits from the past four years and is trading at about the same price it was back then.

then and now

In 2018, Facebook was trading at a similar price, only then the company had about $50 billion in annual revenue and this year’s estimate (consensus) is about $130 billion. Meta’s market cap is now about $500 billion, implying that in 2018 the stock traded at about ten times sales and only about 3.8 times sales currently being sold.

  • The “TTM” gross profit for the last twelve months was then about $35 billion and now stands at about $95 billion.
  • TTM’s operating income was $20 billion then and is now $47 billion.
  • TTM’s revenue then was $16 billion and is now $39 billion.

FB’s sales, profitability and profits have grown significantly in recent years, but the stock is essentially back to where it was four years ago. Most of Facebook’s profitability metrics have increased 2-3x in that time, showing that the stock is significantly cheaper today than it was then. So why is Facebook so cheap and the stock worth buying?

Is Meta a sale?

FB estimates

Estimates (SeekingAlpha.com)

We see that Facebook missed last quarter’s EPS estimates. It wasn’t a big miss, but the company missed earnings per share by about 15 cents. In addition, this year is likely to see a feared decline in EPS. Last year Facebook made $13.80, this year the consensus estimate is $12.16 and next year the estimate is $14.39 (consensus among 32 analysts).

Why did the EPS fall in the first place?

We know that Facebook bets big on the metaverse. Whether the bet pays off remains to be seen, but a virtual world on Facebook probably seems to appeal to a lot of people (billions, potentially). Therefore, I will not examine the company’s ambitions to bet on the next evolutionary stage of the Internet. In my opinion, Meta’s investment in the metaverse will pay off, but it will take time, and the metaverse will probably be a huge undertaking in 5-10 years.

Early investing companies like Facebook will be the market leaders in this lucrative virtual internet market and world. Some investors are angry that Facebook spent more than analysts expected on its metaverse projects last quarter, and as there is some uncertainty about when the investment will pay off, many are dumping the stock. Is this a sensible investment approach? Should Meta’s shareholders be more patient and give Mark Zuckerberg and the Facebook team the benefit of the doubt? Love him or hate him, Mark Zuckerberg has made many people very rich. He’s built a great business, made smart acquisitions, and probably knows a lot more about the Metaverse than you or I.

That’s why I see declining profits as a temporary phenomenon that most companies face during their lifecycle. Now let’s look at those sales figures again. Last year, the company posted earnings per share of $13.80, bringing the TTM P/E ratio to just 13.5. Next year, consensus estimates are $14.39, bringing the company’s projected P/E ratio to just 13, remarkably cheap for a dominant and market-leading company in Facebook’s position.

In addition, we see strong revenue growth. Last year the company reported revenue of $118 billion, this year the consensus estimate is $131 billion and next year analysts expect $153 billion in revenue. As a result, we see year-over-year revenue growth accelerating from 11% this year to approximately 17% in 2023.

Income estimates

Increase in turnover

Revenue Growth (SeekingAlpha.com)

We should continue to see healthy revenue growth (15-20%), year over year as the business grows in the coming years. In addition, the company should also grow again in the coming years to EPS growth. As the company demonstrates its ability to return to EPS growth, its P/E multiple should increase. The stock is currently trading around a P/E ratio of 13, but it could trade around a multiple of 18-22 once there is more certainty about future earnings potential.

Here’s what Meta’s finances could look like in the coming years:

Year 2022 2023 2024 2025
Revenue $131 billion $153 billion $176 billion $199 billion
Increase in turnover 11% 17% 15% 13%
pes $12.16 $14.39 $17.26 $20.72
Forward P/E Ratio 15 18 20 22
share price $216 $311 $415 $525

Source: the author

If the company returns to a stable EPS of about 15-20%, Meta’s earnings per share could rise above $25 over several years. In addition, as the company returns to growth and its earnings potential becomes more transparent, the stock should once again post a higher P/E multiple. Meta is currently trading at a forward P/E ratio of 13, but this ultra-low multiple is unlikely to hold. Instead, demand for the stock is likely to increase in the coming years, putting the P/E multiple in the 18-22 range, in line with other tech-focused growth companies showing weak growth in stocks. By assuming a slightly higher P/E multiple, we can see that the company’s stock could rise in the $400-500 range within a few years. Therefore, I see Facebook as an attractive purchase here and my position in the company can be increased in the coming days.

Meta-risks

An investment in Meta is of course not without risk. Increased competition, government regulation, a slowdown in the economy in general and other variables are risks to Facebook. Advertising spend could slow due to a slowing economy and other factors that would negatively impact Meta’s profitability. The company’s investments in the metaverse could fail, causing the stock price to fall further. The Company’s social media platforms could experience extended periods of decline, which would have a very negative impact on growth and profitability. Despite my optimistic outlook, there are many risks associated with Facebook/Meta, and one should carefully consider the risks before investing in the company’s stock.

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