Is Now A Good Time To Buy Meta?

Is Now A Good Time To Buy Meta? When Meta held its IPO in May 2012, it broke records and set a new standard for tech startups. By that time, the social media platform had been in business for more than eight years, operating under the name Facebook.

In the nearly ten years that followed its massive IPO, Facebook/Meta’s stock price went almost straight up. It eventually peaked at more than $375 per share in September 2021.

Unfortunately, 2022 wasn’t kind to tech stocks, and Meta was hit particularly hard. Inflation made consumers cautious. Retailers responded by pulling back on marketing budgets, which impacted digital ad revenue – Facebook’s major source of income.

When the Federal Reserve elected to increase interest rates in an effort to rein in inflation, investors got anxious. They quickly sold off shares of higher-risk growth companies and bought recession-proof alternatives like consumer staples and energy.

Those factors created industry-wide pressure on tech stock prices, and most tech companies lost a substantial portion of their value. The tech market’s downward spiral affected both established companies and start-ups, which came as a shock to seasoned investors.

The NASDAQ, which is home to a higher proportion of tech stocks than other indexes, closed out 2022 down more than 30 percent.

Apple went down 20 percent over the course of the year, and Alphabet shares declined by more than 35 percent. Palantir, which held its IPO in 2020, dropped in excess of 40 percent of its value, as did Snowflake – another 2020 IPO.

However, among the major tech companies, Meta was the biggest loser. In 2022, Meta stock went down roughly 65 percent. Share prices started trending up in November 2022, but it was too late in the year to fully recover. That progress has continued into 2023, which has some investors and analysts wondering if now is a good time to buy Meta.

Why Did Meta Stock Go Down?

Understanding whether it is the right time to buy Meta stock begins with unraveling why it dropped so much more than its tech peers in 2022. The ad revenue – or lack thereof – played an outsized role in the company’s 2022 difficulties. Other large tech companies like Apple and Microsoft have a family of popular products and services. Unlike Meta, they aren’t overly reliant on a single source of income.

On top of that, Meta has run into a series of obstacles that are organization-specific. For example, new privacy settings on Apple devices have drastically curtailed Meta’s ability to target ads to particular demographics. That was one of the most appealing features of advertising on Facebook, and the loss has advertisers rethinking where they invest their marketing dollars.

However, the biggest issue might have nothing to do with advertising. Investors are growing concerned with CEO Mark Zuckerberg’s all-in bet on the metaverse. Zuckerberg has poured resources into Reality Labs, the Meta subsidiary focused on building out a virtual world.

While the project may be a huge money-maker if and when the metaverse eventually matures, right now it is a strain on the rest of the business. Meta’s Reality Labs had an operating loss of $13.7 billion in 2022, and revenue went down by five percent – a big drag on Meta’s already-depressed top-line results.

Despite these challenges, Meta shareholders remained hopeful that the stock would recover when the market moved back into bull territory. They remained optimistic through October, but the worst was yet to come.

The most significant drop in Meta’s stock price occurred after its third quarter earnings results were announced. In the first trading session after the report was released, shares went down almost 25 percent, putting the price back at 2016 levels.

Layoffs immediately followed. The company decreased its global workforce by 13 percent – a total of 11,000 jobs. In February, insiders told the Financial Times that additional layoffs are coming before the end of first quarter. Whether that is true or not remains to be seen.

When Meta announced its fourth quarter and full year results, share prices went up by 20 percent. Investors were pleased with the company’s new focus on efficiency, and they expect financial progress from the reduction in facility and payroll expenses. However, the roller-coaster ride isn’t for everyone, and Meta’s future is far from certain. So, is now a good time to buy Meta?

Is Meta Stock A Buy?

Analysts are fairly evenly divided on whether Meta stock is a buy at its current price. The contingent that is bearish on Facebook suggests that it’s too soon to tell whether Meta can turn things around in any meaningful way.

The fact that demand for digital advertising on Meta Platforms is dropping despite a rise in active users is concerning. That could mean advertisers are moving to other social media sites like TikTok. In addition, the skeptics aren’t sold on the idea that the metaverse will generate substantial profits in the near or medium term. They want to see more progress before recommending the stock as a buy.

Those who are enthusiastic about the future of Meta stock believe that the company will see a dramatic recovery on its own merits – a trend that will be amplified during the next bull market. For example, Meta is hard at work on new solutions to offset the obstacle presented by Apple’s privacy settings. It appears that the platform has integrated Artificial Intelligence (AI) technology into its ad-targeting logic, and it is already making progress in recovering the ad targeting capabilities lost with Apple’s revised privacy policy.

Furthermore, though ad revenue is down right now, the company expects to see an uptick in advertising on its new Reels feature. If this projection pans out, Meta may be able to overcome the threat posed by TikTok and other short video sites.

So, is Meta stock a buy? Zuckerberg himself is optimistic. When November layoffs were announced, he said this to the employees remaining with the organization:

I believe we are deeply underestimated as a company today. Billions of people use our services to connect, and our communities keep growing. Our core business is among the most profitable ever built with huge potential ahead. And we’re leading in developing the technology to define the future of social connection and the next computing platform.

Those are inspiring words from the man who built a social media empire from his college dorm room.

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