Big tech has been humbled by the market over the past several months. We're witnessing the highest levels of inflation since the early 1980s, and as a result, the Federal Reserve has made the decision to raise interest rates. What's more, Russia's invasion of Ukraine has slowed down the global supply chain, impacting companies around the world. Pressure from all directions has negatively impacted investor sentiment and sent stocks into a downward spiral.
Year to date, the S&P 500 has drawn back nearly 20%, and the Nasdaq Composite has retreated even further, plunging almost 30%. Two well-known tech stocks, Meta Platforms (formerly Facebook) (NASDAQ: FB) and Netflix (NASDAQ: NFLX), have not been spared from the sell-off party. With no end to the madness in sight, long-term investors should look to exploit the stock market's ongoing correction. So, let's explore whether Meta or Netflix is the better choice for investors at the moment.
Share prices for Meta, which is best known for its dominant social media platforms, have shed 43% since the start of the year. After ending 2021 on a weak note, the company rebounded nicely by posting first-quarter results largely in line with analysts' expectations. The company's top line improved 7% year over year to $27.9 billion, and diluted earnings per share dwindled 18% to $2.72.
So what's with the slowing growth? On theearnings call CEO Mark Zuckerberg pointed to several challenges that the company is facing at the moment. First, obstacles like its transition to short-form video , which currently monetizes at a slower rate than other segments, and Apple's iOS privacy changes, which adversely affect its core advertising business, continue to exert pressure on the company's top line. Zuckerberg also pointed to softness in e-commerce, relative to pandemic levels, and impacts from the Russo-Ukrainian war as meaningful headwinds.
This year, analysts predict revenue of $127.3 billion, representing 8% growth year over year, and earnings per share of $11.94, translating to growth of negative 13% year over year. Next year, however, Wall Street expects total sales to climb 17% to $148.5 billion and EPS to soar 18% to $14.10, indicating investor optimism once comparable metrics normalize. While growth may be patchy in the near future and Meta's transition to the metaverse adds an extra layer of risk, the company's historically low valuation is hard to ignore.
Trading at just 14 times earnings, a steep discount to its five-year mean price-to-earnings (P/E) ratio of 28, Meta stock might be a worthwhile buy for investors today. With nearly $15 billion in cash, the company is well-funded, so investors don't need to fret about hefty investments into Meta's money-losing Reality Labs business.
After it delivered yet another disappointing quarter to kick off 2022, the streaming giant's shares collapsed, sending its stock price down nearly 70% year to date. Netflix's $7.9 billion in total sales missed consensus estimates by an immaterial 1%, while its $3.53 earnings per share easily surpassed Wall Street's forecasts by 21%.
Unfortunately for the streaming platform, however, the earnings beat was dwarfed by low subscriber count. The streaming platform's 6.7% year-over-year memberships growth failed to hit analysts' expectations and represented a quarter-over-quarter loss of 200,000 subscribers. Investors were unhappy to hear that the company projects a loss of two million subscribers in the second quarter.
According to management, the slowdown in growth was caused by a pull-forward in subscribers from COVID-19. But that lessened growth, in addition to password-sharing among 100 million households and intense competition from well-funded enterprises like Walt Disney, Apple, and Amazon, means that Netflix's reign as the dominant streaming platform is being called into question more so now than ever before. In 2022, analysts project Netflix's total revenue will rise a modest 9% year over year to $32.4 billion, and that its EPS will drop 3% to $10.90.
While Netflix may be experiencing growing pains, the company remains the world's largest streaming service on all fronts: paid memberships, total engagement, revenue, and net profit. And at existing levels, the stock is trading at an all-time low P/E multiple of 16, presenting a very tempting valuation for long-term investors.
Should you buy Meta or Netflix?
Both of these companies carry favorable risk-reward ratios and strong margins of safety today. Although investors should closely monitor Meta's aggressive investments into its metaverse transformation, the social media juggernaut operates a stable core business, boasts a sturdy balance sheet, and enjoys robust free cash flow generation.
Netflix will continue to face pressure as the industry becomes increasingly crowded, but it reigns over the largest portion of theglobal marketand continues to make great strides in improving its original content. All in all, I think investors with a long-time horizon can take advantage of the current sell-off by purchasing shares of both these technology leaders.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors.
Luke Meindl has positions in Apple. The Motley Fool has positions in and recommends Amazon, Apple, Meta Platforms, Netflix, and Walt Disney. The Motley Fool recommends the following options: long January 2024 $145 calls on Walt Disney, long March 2023 $120 calls on Apple, short January 2024 $155 calls on Walt Disney, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.