1 FAANG Stock You Will Regret Not Buying?

FAANG Stock You Will Regret Not Buying: Having lost 42 percent of its value YTD, Facebook parent company Meta Platforms (NASDAQ:FB) is trading at a steep discounts to its intrinsic value.
After its sharp selloff, the company may finally be trading in a range that allows investors to scoop up value at a bargain.
At the same time, the company’s recent shift toward focusing on VR and metaverse technology offers the possibility of higher growth rates in the future. Here’s why Meta may be one FAANG stock you will regret not buying while lower prices persist.

Meta Revenue and Earnings

In Q1, Meta reported $27.9 billion in total revenue, up 7 percent from the previous year. Similar revenue is expected in Q2, where the company’s guidance suggests revenues of $28-30 billion.
Other metrics, however, were weaker still, leading in large part to the selloff that has pared back the company’s market cap so much this year. Earnings were $2.72 per share, 18 percent lower than the $3.30 the stock delivered a year earlier.

Operating income was also softer than Meta’s recent growth streak would have led investors to expect. The company reported $8.5 billion in Q1 2022, down 25 percent from 2021. Operating margin also shrank from 43 percent to 31 percent. These were two of the company’s most worrying metrics.
Meta’s user base grew for the quarter, albeit at a fairly anemic rate. Daily active users on Facebook rose by 4 percent year-over-year. Total daily users for the Meta family of platforms rose by 6 percent.
One item from the report that was very favorable for shareholders was the continuance of Meta’s share repurchasing program. In Q1, the company repurchased $9.39 billion of its stock. A further $29.41 billion of Meta’s cash holdings have already been authorized for future buybacks.


Meta is currently trading at a steep discount to its intrinsic value, making it much more attractive than a year ago.
The current P/E ratio of 14.8 is appreciably lower than the historical average over the past five years. Meta is also trading at a price-to-sales ratio of 4.1, which is roughly in line with the average for its industry.
A discounted cash flow forecast reveals upside to $313 per share, representing as much as 61% upside from current levels.
Taking these factors into account, Meta seems like a very fair value at its current price.
As its currently cheap pricing might suggest, Meta also appears to have considerable short-term upside potential according to consensus analysts forecasts.
Currently trading at $195.12, FB has a median 12-month price target of $287.50, based on 48 analyst projections. This would result in a gain of 47.3 percent, leaving more than enough room for investors to see strong gains even if the stock underperforms expectations.

The Potential of the Metaverse

While social media channels continue to drive Meta’s revenues today, its future growth trajectory will largely be determined by the success of the metaverse technology it is developing. The metaverse market is expected to grow at a CAGR of 47.6 percent through 2029, eventually reaching a total value of over $1.5 trillion.
For now, Facebook’s metaverse segment, known as Reality Labs, is posting hefty losses. In Q1, the division generated $695 million in revenue but reported a total loss of $2.96 billion.
The good news is that revenue is increasing rapidly.
In Q1 2021, Reality Labs brought in just $534 million, equating to year-over-year growth of 30 percent. Mark Zuckerberg recently stated that steep losses would continue for the next 3-5 years.
With mass adoption of metaverse technology, however, the company’s future profits could be considerable. Meta is already discussing a fee structure that would allow it to make money from the sale of goods in its digital worlds.
Revenues from gaming and advertising could also expand as consumers enter the world of virtual reality. While the metaverse is still far from a sure thing, it’s clear that there’s enough interest on the part of both consumers and businesses to make Meta’s new direction potentially very lucrative.

TikTok, Falling Ad Prices… The Many Risks to FB

Meta comes with a few fundamental business risks that investors should be aware of. Competition in the social media world is increasing rapidly, suggesting that Meta’s sites may not have an unassailable moat when it comes to viewer attention.
TikTok, in particular, is beginning to give legacy platforms a run for their money. A more competitive environment could continue to put pressure on Meta’s revenues.
Prices for ads are also falling, potentially jeopardizing the historically lucrative business of inserting ads into social media feeds.
In the Q1 report, Meta detailed an 8 percent reduction in average price per ad across its family of platforms. Ad impressions, however, rose by 15 percent. For the moment, at least, these two forces will likely balance each other out.
Finally, there’s the risk of the metaverse itself. Investors and analysts have been broadly bullish on the technology, but there’s a distinct possibility that it could fail to catch on.
By 2026, research firm Gartner expects about 25 percent of consumers to spend one hour each day on some kind of metaverse platform. Critics, however, argue that the metaverse is merely an extension of existing internet platforms, calling its proposed value into question.

Is Meta a Buy?

Meta’s risk factors and revenue headwinds would likely make it too expensive at a P/E closer to its normal historic range of 25-30. At under 15, however, the stock appears to be a reasonably good bargain. Lower ad prices, slowing user growth and competition from newer platforms obviously present challenges for Meta, but the platforms the company owns are still immensely valuable advertising assets.
If the company’s investments in metaverse technology pan out, investors who buy at today’s prices could see very strong returns over a longer time horizon.
Reality Labs is almost certain to see several more years of losses. With revenue already growing by 30 percent year-over-year before most of the metaverse platform’s features have been introduced, however, it’s clear that there’s a great deal of potential for future growth in this business segment.
For growth-oriented investors looking at the long run, Meta looks to be a good buy right now. The company’s underpinnings in strong social media platforms provide a degree of safety, while the more speculative metaverse business offers the chance for rapid growth in future years.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.