Meta Stock Making a Comeback

Meta Platforms Inc. (META) isthe company that owns Facebook and is the world’s largest social network. It provides a digital social media platform allowing billions of people to connect with one another. Facebook is well known as a site for friends and families to connect. It’s also used by political organisations, small businesses, and large corporations to reach a wide audience. Users can share information, ideas, photos, and videos through its platform and applications.

Meta stock value dropped 65% in 2022. This was the biggest fall among the big five tech companies. Investors wiped $80bn off the market value of Meta after Mark Zuckerberg’s company reported profits had halved during the third quarter as advertisers controlled their spending due to the global economic downturn.

Read on to learn more about Meta Platforms, how it crashed in 2022 and its comeback in 2023.

About Meta Platforms

Meta Platforms, Inc., originally named Facebook, Inc., và TheFacebook, Inc., is an American multinational technology conglomerate. The company is based in Menlo Park, California and owns Facebook, Instagram, and WhatsApp, as well as other products and services. Meta is one of the ten largest publicly traded corporations in the United States. It is one of the Big Five American information technology companies, as well as Alphabet (Google), Amazon, Apple, and Microsoft.

In 2022, Meta stock dropped from a 384 intraday high in early September 2021 to an 88.41 low when it reached its lowest point at the end of October 2022 last year.

However, Meta stock is picking itself up after posting a net income of $4.4 billion on $27.7 billion in total revenue for Q3 of its 2022 fiscal year (FY).

Around 98% of the quarter’s total revenue was advertising revenue.The rest of the revenue came from the company’s Reality Labs segment and other sources.

Revenue fell 4% year over year (YOY) in Q3 FY 2022.  The company’s total operating income was $5.664 billion, down about 45% in comparison to the year-ago quarter.

Competitors of Meta Platforms include Alphabet Inc.’s (GOOGL) Google, Apple Inc. (AAPL), and Twitter Inc. (TWTR).

Meta stock has gained 51%

Having lost more than 50% of its value last year, Meta Platforms (META) has made a comeback with shares up approximately 51%. It has shown renewed strength since rallying from early November lows.

However, in comparison to its long-term performance, this is just the tip of the iceberg.  Actually, since it appeared as Facebook just over 10 years ago, Meta Platforms has gained a huge 375%!

Due to its massive gains over the past 10 years, investors are probably wondering if they’ve already missed out on Meta Platforms. Is the stock still worth investing in?

The decline in ad spending has hit Meta Platforms hard

Without a doubt, the economic headwinds that began in late 2021 have hindered the company’s growth. This is because Meta Platforms gets nearly all its revenue from the digital advertising that appears on its platform. Advertising budgets are the first to be cut in times of economic uncertainty. Meta Platforms is the world’s second-largest digital advertiser, with approximately 20% of the market, according to Digiday.

The downturn and the well-known decline in ad spending have hit Meta Platforms hard. However, this dark cloud has a silver lining as once the economy starts to recover, the digital advertising spends will increase and the ad dollars will flow again.

The metaverse

CEO Mark Zuckerberg’s recent focus on the metaverse turned heads. Over the previous two years, Meta Platforms has invested almost $24 billion to bring this vision to life. Not everyone believes this was a profitable investment. Even so, the same technologies that focused on this virtual domain have other potential profitable applications.

Meta Platforms has a long history of developing artificial intelligence (AI) to recognise people in photos and recommend content for users of its social media platforms. In the same way, the company has used its algorithms to convert data and direct its advertising efforts.

Also, let’s consider the development of virtual reality (VR) and augmented reality (AR) that has a lot more applications than an all-encompassing virtual world (metaverse) with uses in healthcare, education, and entertainment, among others. Meta Platforms will definitely find other ways to capitalise on the money it spent to bring the metaverse to life.

The recent buzz surrounding ChatGPT and other chatbots shows that there’s still plenty of time ahead for AI technologies which is an area in which Meta Platforms is well-informed.

Meta Platforms has a history of growth

Past performance is no guarantee of future results but it does help provide necessary background. Regardless of the present downturn, Meta Platforms has a history of market-beating growth. As recently as 2021, Meta Platforms grew revenue by 37% and earnings per share by 36%.

Despite these headwinds, the company prepared for a crisis, laying off 11,000 people (13% of its workforce) in November 2022 while cutting other costs to strengthen its financial position. Recent reports suggest that Meta plans to lay off more employees, with thousands of additional staff cuts on the table.

Another factor to bear in mind is Meta’s unrivalled reach and the corresponding network effect. According to the latest information, 3.74 billion people log into one of Meta’s social media platforms each month, with 2.96 billion checking in daily. Advertisers will go where the audience is, and there’s no denying Meta’s credentials in that respect.

Taken as a whole, the situation suggests that once the economy starts to recover, the new Meta Platforms is poised to make a big comeback.

Update on the year of efficiency

If you’re wondering exactly what this means for Meta’s revenue and earnings growth, CEO Mark Zuckerberg addressed that in a March 14 blog post titled, “Update on Meta’s Year of Efficiency.”

He noted that the company is prepared for a new economic reality of higher interest rates, a lean economy, and greater geopolitical instability which could lead to higher costs, more volatility, and slower growth.

Despite the layoffs, Zuckerberg claimed the company is not like most that “will scale back their long-term vision and investments.”

“But we have the opportunity to be bolder and make decisions that other companies can’t,” he wrote. “So we put together a financial plan that enables us to invest heavily in the future while also delivering sustainable results as long as we run every team more efficiently. The changes we’re making will enable us to meet this financial plan.”

Essentially, slower sales and higher costs may be a reality, but it looks like the company will achieve the proverbial “doing more with less.” Whether or not that will happen remains to be seen, but it does seem likely that the company can retain advertisers and attract new ones; this in turn can grow earnings and stock appreciation over time. 

Disclaimer:

This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced or hyperlinked, in this communication.