Meta’s stock price has been reduced by 50% because of the forces mentioned. At a much lower price, this social media giant is attracting value-conscious investors who are wondering if Meta Platforms stock is a good buy.
The image was provided by the same source.
Meta Platforms holds a significant share of the global ad market.
Meta has increased revenue at a compound annual rate of 41.3% over the last decade. The company’s suite of social media products has grown to have over 2 billion daily active users. The sites are free to use, but there are plenty of free services for consumers to choose from. Meta’s operating income grew from $538 million in 2012 to $46.7 billion in 2021.
The data is from YCharts.
It’s massive scale shouldn’t be taken for granted because users join for free. It’s large is what attracts advertisers who want to influence the billion that visit the apps every day. Worldwide, marketers spent $763 billion in 2021, an increase of 24.5% from the prior year. Meta’s revenue was $118 billion, which is about 15%. marketers are increasing their spending on digital channels Since people spend more time on their phones, connected TVs, and laptops, marketers are shifting their spending to where consumers are.
It makes sense to measure return on investment when you invest in digital advertising. Meta’s platforms allow marketers to retrieve data such as how many people clicked on their ads. That can be hard to see from a billboard, radio, or newspaper.
Meta’s stock price is falling because of factors.
The government’s response to the coronaviruses has led to an ugly bout of inflation. The Federal Reserve is trying to get it under control. Growth stocks like Meta Platforms tend to experience inverse relationship with asset prices because of their correlation with interest rates. Cash flows in later years give more of the value of the stock, which is subject to a bigger discount when interest rates rise
Apple changed its privacy policy last fall, making it more difficult for Meta to track user activity on mobile devices. Meta’s advertising partners are less targeted to the users advertisers want. There is a potential $10 billion drop in annual ad revenue that is tied to the privacy change if Meta can’t find a solution.
Competition is a challenge that potential investors need to watch out for. ByteDance’s Tiktok is gaining in popularity, and could soon get more advertising dollars. The rise in competition for people’s time resulted in decreasing engagement from existing users.
E-Commerce retailers are selling more digital ad inventory, increasing supply in the market and taking ad dollars away from Meta. If that wasn’t bad enough, streaming content providers with hundreds of millions of subscribers have announced ad-supported versions coming out, a move to attract ad dollars to be sure and divide up the ad revenue pie further.
When it told investors that it expected a growth in revenue, it mentioned some of the problems. This would be the lowest rate of growth in the last decade.
The YCharts has data on the FB PE Ratio.
Meta’s stock price crashed because of these headwinds. It’s selling at a price-to-free-cash-flow ratio of 13 and a price-to-earnings ratio of 14.
Meta is facing a challenge to overcome them, but the relative bargain valuation of the stock suggests that they are already priced in. Going forward, the potential reward Meta can generate is worth the risks. Right now, Meta Platforms stock is a good buy for long-term investors.
Randi Zuckerberg is a member of the board of directors at The Motley Fool. Parkev Tatevosian has positions in Apple and Meta Platforms. There is a disclosure policy of The Motley Fool.
Randi Zuckerberg is a member of the board of directors of The Motley Fool. Parkev Tatevosian has positions in Apple and Meta Platform, Inc. There is a disclosure policy at The Motley Fool.