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Today I want to dive into my thoughts on Meta. Is Meta worth considering as a money investment? Last year was a difficult one for the company. It was even more so difficult for Meta’s founder Mark Zuckerberg who lost roughly $100Billion of his fortune. As with most high-net-worth individuals, his wealth is largely tied directly to the stock price of the company he founded, Meta. But we’re not here to look at “Zucc.” We’re here to assess whether an investment in Meta could potentially increase your net worth. Is the downturn in the past year a buying opportunity? But, first, we need to understand what happened in 2022.
Last Year Was a Bad One for Meta....Really Bad
Last year, Meta recorded the worst year in its history. Meta stock declined -61% over the course of year 2022. So, is Meta worth considering? To be honest, the company has a rather short history as a publicly traded company. The social media giant was founded in 2004 and went public in May 2012. Nevertheless, you need to understand why that significant decline in 2022 happened. So, here is a quick, high-level overview of what went wrong.
- Interest rates skyrocketed, which made stocks less attractive
- Meta revenues were dropping for the first time in its history
- A weak growth outlook didn’t help either
- Nor did the billions that Zuckerburg was spending on building the Metaverse
The combined effects wreaked havoc on shareholder value for Meta investors. However, as long-term investors, we have to ask ourselves…
Will this last? Is Meta Worth Considering?
After dropping 63% last year, the price is slowly recovering. Why? Let’s look at the four factors I mentioned earlier.
- The pace of raising interest rates is slowing down making stocks much more attractive
- Meta’s latest quarterly report was positive after the cost-cutting measures succeeded
- The future outlook for the company also improved
- However, billions of capital are still flowing into Metaverse-related projects
That’s why the stock is up 39% year-to-date (YTD) 2023. If you’re a visual learner, this image pretty much sums it up.
It may look like a promising start to the new year. But the short-term movements of the stock price tell us nothing. We have to look at…
Meta’s Long-Term Business
A network of roughly 3 billion people has created a massive competitive advantage due to high switching costs. But the key question is whether or not that competitive advantage is durable?
As legendary investor Warren Buffett puts it: “The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.”
Pinterest, Snapchat, and other smaller social media concerns pose little threat. TikTok on the other hand might be a dangerous threat. The combined effects of a simple interface and addictiveness resulted in a rapidly growing consumer base. That’s why Instagram is focusing heavily on video content now. But there's more. Apple is trying to block Meta from displaying ads via iOS privacy changes. Things are still pretty much uncertain in that area. But before you turn into a Meta pessimist, let’s look at some positive developments.
While Meta has recently faced a number of short-term challenges, I don't see these issues as particularly meaningful for investors with longer term horizons. The company seems to consistently face controversies surrounding privacy concerns and regulatory issues. These could impact the company's near-term stock price fluctuations. Its competition with TikTok is also ongoing and is a major concern for many investors. However, TikTok certainly faces regulatory issues of its own.
I see two big opportunities for Meta, however. Firstly, the monetization of WhatsApp and Messenger. Finding a way to effectively make money without disturbing the user base could be the next major revenue source for the next decade.
Additionally, of course, I can’t neglect the implications of the so-called Metaverse. However, that project is much riskier. It's difficult to say whether the billions spent will pay off, but I'm rather optimistic. New products and technologies, such as virtual reality (VR) and artificial intelligence (AI) have huge potential. They could pay off big as investments with outsized returns in the long-term for the company...and for shareholders. And if anyone is going to make a dent in these areas, it will be Meta.
Is Meta worth considering? The future of Meta depends on TikTok, iOS privacy changes, WhatsApp+Messenger, and the Metaverse. Now it’s up to you to dive even deeper and estimate the impact. Who knows, maybe you have just found your next investment.
Market volatility is likely to create buy-in opportunities for potential investors. So, if you're a believer in the long-term money investment prospects of Meta, this is one to keep an eye on. Using multiples such as P/E Ratio as a starting point is good. Heavy attention should also be paid to return on invested capital. ROIC is going to drive both future profits and capital allocation to support future growth. It's a leader in a fast-growing sector. I would look for buy-in opportunities at less than $180 per share, and be sure to bake in a margin of safety. According to one author at Seeking Alpha, Meta is "a buy-and-forget" stock, meaning a potential investor can buy it now and just hold it long-term.
Remember - the long-term return on investment is going to be determined by not only the quality of the business but also by the price you pay for that business. Leveraging opportunities to buy at attractive prices will aid in magnifying your return. Best of luck with your analysis. Let me know if you need any help.
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The information provided on this site is based on my own personal experience, research, and analysis, and it is not to be construed as professional advice. Please conduct your own research before making any investment decisions. I am not a professional financial advisor, stockbroker, or planner, nor am I a CPA or a CFP. The contents of this site and the resources provided are for informational and entertainment purposes only and do not constitute financial, accounting, or legal advice. The author is not liable for any losses or damages related to actions or failure to act related to the content on this website.