Meta: I’d Fall In Love At $150

Meta: I'd Fall In Love At $150

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Meta Platforms is one of 2022’s most beaten down tech stocks.

It is a profitable, growing company that is undergoing a big selloff due to small headwinds.

At today’s prices, it appears undervalued.

In this article, I explain why I would “fall in love” with the stock and increase my exposure at $150.

I may buy at higher prices than that, but $150 is the price at which it would become inevitable.

Chip Somodevilla/Getty Images News Meta Platforms (NASDAQ: FB ) is one of 2022’s most beaten-down large cap tech stocks. After its February earnings release, it fell 26% in a single trading day, then proceeded to decline another 21% after that. The earnings in themselves weren’t that bad. Revenue was healthy at 20%, beating estimates, and EPS only missed by 4%. It was most like the guidance that had investors running scared. In the Q4 earnings call, CFO Dave Wehner said that he expected only 3%-11% revenue growth for the first quarter. He also said that Apple’s ( AAPL ) app tracking transparency (“ATT”) changes would cost it $10 billion in 2022. Together, these comments seem to have spooked investors, and sent them running from Meta stock.

Certainly, some kind of correction was warranted after Meta’s fourth quarter earnings release. A $10 billion hit to revenue matters, and 11% revenue growth would be the slowest in Meta’s entire history. A lower price was justified. But the selloff we have actually seen was not. FB is currently down about 50% from its all time high. Yet its EPS is only down 5%. To be sure, FB was priced assuming positive future growth, but in the second half of this year, it will begin to “lap” past quarters in which Apple’s ATT changes were already part of the picture. So there is a strong basis for thinking that FB will return to strong growth in the future.

Not only that, but there are entirely new monetization avenues that Meta is currently exploring. Just recently, Meta rolled out WhatsApp payments . It’s currently in the process of monetizing Instagram Reels . All of these bets will take time to pay off. But if they work anywhere near as well as FB’s core advertising platform has, they’ll be delivering a positive contribution to the bottom line in no time.

The big question mark, of course, is the Metaverse. Facebook is investing $10 billion a year on Reality Labs, its Metaverse business. The segment lost $3.3 billion in Q4 , on $877 million in revenue. Had reality labs not been part of the equation, Meta would have generated positive year over year growth in EBIT, as the table below shows: Meta platforms It’s clear that Meta has a lot riding on its Metaverse bet. Obviously, it believes in the vision, as it changed its business name to reflect it. More importantly, it’s spending a lot of money on the project. Enough that it is willing to post negative year-over-year earnings growth for the sake of building the Metaverse.

This strategy is not without its risks. Arguably, there are other areas of the business that could use the money more than Reality Labs. WhatsApp is under-monetized , Instagram is facing competition from TikTok, and the core ad platform is battling with Apple.

If the Metaverse pays off, it could pay off in a big way. But the spending is a bit of a gamble when you consider that the more “obvious” business segments listed above need work.

What does all this mean for FB investors?

That the stock is riskier than it was in the past. Between Apple’s ATT changes, increasing competition and the Metaverse bet, FB is spending cash that was once padding the bottom line. Nevertheless, the company still cranks out solid top-line growth, and has outrageously fat margins. There’s a price at which it becomes extremely attractive. In this article I will make the case that at $150, FB stock would not be good value, but a great one–the kind of bargain that a forward looking investor would “fall in love with.” I am long FB now, and I consider the stock a “good” value at today’s prices. But at $150, I’d exit other positions just to buy more FB. In the ensuing paragraphs I’ll explain why I feel that way. Competitive Landscape

It seems fitting to start this analysis with a review of FB’s competitive landscape. The competitive situation is probably the single biggest thing FB has going AGAINST it right now, so […]

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