Meta Platforms (FB), Facebook's newly formed parent company, has struggled over the past week, seeing its valuation get hit hard. The sell-off was triggered after the company reported its first-ever decline in daily users for the fourth quarter of 2021. The recent price action has forced investors to reconsider their views on the company's future prospects and decide whether to buy the dip or run the other way.
Since last year, when the company decided to pivot toward becoming a leader in virtual reality applications, Facebook had been buzzing, rebranding itself as Meta, in order to associate itself with various upcoming technological disruptions rather than simply being known as a social media company.
So what happened?
Aggressive tapering by the Federal Reserve and an earlier-than-expected liftoff for interest rates have dragged down share prices of technology companies, and other news affecting Meta's stock includes Peter Thiel, billionaire tech investor, stepping down from Meta's board later this year. Besides that, Meta announced it may discontinue its services in Europe if it is not permitted to transfer data back to the United States, following regulatory scrutiny in the region. As a result, in an environment where investors were already avoiding risk, news that the company's daily users had declined and profits had dropped was what pushed investors over the edge and sparked a selling spree.
Meta has been affected by Apple's recent changes to its privacy policies, which limit app developers' capability to reach users, which will have an impact on Facebook's advertising revenue stream. This is because Facebook's apps rely heavily on Apple and Google for consumer access. As a result, the company is extremely sensitive their policies because it lacks its own operating system or mobile phones on which it can rely on even if other companies adopt unfavorable policies. Meta cautioned investors that Apple's App Tracking Transparency feature is expected to reduce Facebook's revenue by nearly $10 billion.
But despite the recent drop in Meta's stock price, its future outlook remains positive, supported by a strong track record of delivering excellent financials. Furthermore, the company is actively exploring new opportunities, such as the metaverse, which is likely to generate new revenue streams for the company.
It is important to note that Meta Platforms has delivered excellent growth in earnings over the last ten years, with its revenue growing from $3.7 billion in 2011 to $117.9 billion in 2021. This is a compounded annual growth rate (CAGR) of 41%. Similarly, the company’s earnings per share (EPS) jumped from $0.46 in 2011 to $13.77 in 2021, achieving a CAGR of 40%. Moreover, the company reported an operating income of $39.3 billion and an EPS of $13.77 for 2021. Despite Meta’s active users declining in 2021, the company’s revenue per user surged to $9.39 in the last three months of 2021, touching its highest level in the last two years.
Investors should also take comfort in knowing that Meta Platforms is actively working on taking social media interaction to the next level through the development of the metaverse. The company envisions a future in which its users will use virtual avatars to interact with others, and benefit from a variety of digital experiences.
With the concept of remote working becoming more mainstream, companies and individuals will more easily be able to conduct their business online, and the metaverse might play a huge part in this. Because the metaverse encourages group experiences, activities such as meetings, recruitment, and even live music concerts could potentially be attended online, lowering the costs of travel and booking a venue for an event.
Despite the company's huge investment in the development of the metaverse, which is dragging down profits, a potentially successful application of the new concept could help Meta Platforms tap into an $800 billion market by 2024, which could eventually expand to $1.6 trillion by the end of 2030. Moreover, Facebook still has the most users among social media companies and can use that leverage to promote the metaverse better than any other company. Given the market's enormous potential, Reality Labs' $10.1 billion investment in 2021 appears to be a small price to pay.
The Bottom Line
The recent drop in Meta Platform's stock price appears to be an excellent opportunity for investors to earn superior returns over the next decade.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Naeem Aslam
I am a former Hedge Fund Trader with over 15 years of experience in investment banking. During my early career, I was awarded a national award (Young Irish Broker) in 2010. Over the years, I have worked with Bank of America in equity trading and with Bank of New York in hedge fund trading. I specialize in Blockchain technologies (cryptocurrencies and digital assets) and Sustainable Investments. In my career thus far, I have also extensively covered Equities, Commodities and Forex.
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