Is Meta Platforms a Good Investment in 2022?

By Duncan Ferris

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Meta Platforms (NASDAQ: META) stands out as one of the most recognizable brands in the world and has an enormous market cap of over $450bn. But is META stock is worth investing in?

Meta Platforms (NASDAQ: META) was founded in 2004 as the social media network Facebook. By 2012, it was ready to go public via initial public offering (IPO) at a market value of $104bn.

What Does Meta Platforms Do?

Meta Platforms is, despite its name change in November 2021, best known for the social media megalith that is Facebook.

Other heavy hitters in the company’s ‘family’ of social apps are the likes of photo and video sharing platform Instagram, and encrypted messaging service WhatsApp.

While these apps and social media platforms comprise one of Meta’s business segments, the other is Meta’s Reality Labs operation.

This is the part of Meta’s business that is dedicated to exploring and developing virtual reality (VR) and augmented reality (AR) hardware or software.

How Does Meta Platforms Make Money?

While the business might have changed its name to represent a move towards its Reality Labs operations, its revenue split tells a different story for the moment.

In the company’s most recent earnings, which covered the three-month period ended 30 June, showed that $28.4bn of revenue came from the ‘family of apps’ segment and just $452m stemmed from Reality Labs’ operations.

Mirroring this, the company’s revenue was largely from advertising, with this making up $28.2bn of total revenue. The remaining $218m in revenue will include sales of Reality Labs products such as the Oculus Quest VR headsets or Portal video chat devices.

But what else can the numbers behind Meta Platforms tell us?

META Stock Financials

The stock’s price to earnings ratio of 14.03 is above the industry average of 11.12, according to CSIMarket.

Additionally, META has a price to sales ratio of 3.94 and a price to book ratio of 3.61. These compare with industry averages of 1.36 and 1.53 respectively, indicating that the stock could be overpriced. 

META shares have more than halved in price across the year to date, dropping to a price at the time of writing of $167.93. The past 12 months has seen the share price hit a high of $383.79 and a low of $154.25, with the price trending downwards since September 2021.

No dividend

One other factor that may put long-term investors off investing in META stock is it doesn’t offer a dividend.

Despite its success, Meta still considers itself a growth stock. Traditionally dividends are paid out to shareholders once a company has plateaued. When it’s no longer growing, its share price may be less appealing, so a dividend rewards loyal shareholders.

With so much free cash, Meta can swoop in and buy promising businesses. It may pay a dividend in the future, but for now, it’s concentrating on growth.

Advertising Woes?

As already shown, Meta Platforms’ primary form of income is selling advertising space on its family of social apps. In the company’s most recent earnings it cited “weak advertising demand” as a key reason for revenue decline and projected slowing in the coming months.

The current macroeconomic environment is not encouraging growth in advertising spending. Simply put, inflation means businesses are having to divert money normally used for marketing to other parts of their operations.

Couple that with the fact that Facebook saw its first-ever quarterly decline in users at the start of 2022 (though numbers did bounce back a bit in the second quarter) and it's clear things might not all be rosy at Meta. 

The Metaverse Question

Of course, one of the biggest projects associated with Meta Platforms is the metaverse. In short, this is essentially a virtual world in which users can plug in through VR headsets and interact with one another and conduct other tasks which might traditionally take place in the real world.

Meta Platforms announced its metaverse ambitions back in the autumn of 2021, with the Reality Labs segment working on building a virtual world more encompassing than the currently released Facebook Horizon project.

The move is not without its critics though, with the former Facebook employee and noted whistleblower Frances Haugen raising concerns about privacy and child safety as she stated that the project could simply result in “a replay of all the problems you see on Facebook”.

It’s also worth noting that this project is some way from being a money maker.

At the moment, the project is loss-making and Facebook founder and CEO Mark Zuckerberg has said he expects the net losses of more than $10bn that Reality Labs booked in 2021 to increase significantly across the current year.

Is Meta Platforms a Good Investment?

Meta Platforms has positioned itself as a trailblazer. Though it was by no means the first social media outfit, it was the platform that struck it big. Now the company plans to lead the way into the next stage of the internet’s evolution with its metaverse project.

This could open a significant can of regulatory worms due to privacy concerns, while it’s also a project that is a long way from turning a profit. Couple that with an enormous social media platform that appears to be waning in popularity. 

For that reason, META stock looks like a speculative investment.

However, despite advertising issues and potentially dipping popularity, it’s worth noting that the business still has an astronomical 3.6 billion users under its belt. Macroeconomic headwinds might be making things challenging at the moment, but the business is still pulling in earnings per share of more than $2.40.

So though it seems speculative, META stock might be just about the nicest kind of speculative investment there is. If you believe in the metaverse, META seems like the best horse to back.

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Topics:
Social Media Platforms
Virtual Reality (VR)
AR
Industries:
Communication Services
Companies:
Meta

Author: Duncan Ferris

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Duncan Ferris does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Duncan Ferris has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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