Meta is about 70% down from all-time high, is it a Buy or Sell, if this is a dead stock which will be permanently down or just a cyclist short term effect.

1. What is Meta Platform Inc (Facebook) stock?

Meta Platform Inc. is doing business with a Name “META” formerly known as Facebook Inc (FB). It is an American Technology company based in Menlo Park, California. META provides these top products and services – Facebook, Instagram, WhatsApp etc. Most META products and services enable social connections between Family and friends through personal devices, mobile phones and headsets. META creates a social community for sharing videos, photos, messages, short stories and reels with Family, friends and businesses through Audio, video calls, rooms and chat. This article is for analysis, hence let us keep the About META section short. If you would like more information including history, please refer to these external links.

2. How do Meta Platform Inc (Facebook) earn Money?

Meta earns from its 2 business segments 

1. Meta Apps:

A large percentage of Meta’s revenue is generated from advertising on Meta’s social networking platforms like Facebook, Instagram etc. Business pay Meta for displaying and running Advertisement Campaigns on this platform

2. Reality Labs:

Reality Labs is the second segment which is composed of Meta’s augmented, virtual hardware, software. This is Meta’s plan to build a virtual world which is called Metaverse. Research in this area which has increased higher operating expense for Meta affecting the revenue

3. Why is Meta stock down? Is Meta (Facebook) stock a buy, Sell or hold?

Let us try to understand with some fundamental analysis and Finance numbers. This will help us to know if META is dead as a business or it is just a cyclic temporary situation. If it is losing its market share to Competitors, there is reduction in users etc.

Source: https://www.investing.com/

Source: Meta Reports Third Quarter 2022 Results

1. Revenue is down 4% and is falling consistently in the last few quarters which is not a good sign for a Growth company like META which has shown growth from the last 10 years.
2. Expenses have increased 19 % due to which Net Income is down by 52%

Source: Meta Reports Third Quarter 2022 Results

3. Highlights shows the user base is not reduced, Family daily active people (DAP) – increase of 4% year-over-year. Family monthly active people (MAP) – an increase of 4% year-over-year. Facebook daily active users (DAUs) – DAUs an increase of 3% year-over-year. Facebook monthly active users (MAUs) – an increase of 2% year-over-year.

4. Ad impressions and price per ad – increased by 17% year-over-year but the average price per ad decreased by 18% year-over-year. This reduction in Ad revenue is not due to company fundamentals but overall market situation being afraid of Recession which has shown a reducing % on this spend with META competitors

5. There is an increase in Operating cost, but it is not the maintenance cost, which is incurred to run the organization, but the major portion of this cost goes in research and development cost which will benefit in long term. Below information for META Earning report clearly says they are going through an investment cycle, and they are not hoping revenue growth in the short term and there will be increasing in operating cost in near term. They will start looking at results after 2023.

Source: Meta Reports Third Quarter 2022 Results

Chart Source: https://www.gurufocus.com/

6. If you see this chart which shows META’s continuous increase in Revenue, income and cash flow over years

7. Below is the Intrinsic Value for META which is calculated based on two valuation methods DCF valuation and Relative Valuation. Intrinsic value is $160.05 which shows META is currently undervalued by 31%.

Source: https://www.alphaspread.com/

4. Is Meta (Facebook) stock a buy, Sell or hold?

Looking at the current valuation it is a Good buy. But before doing any  investment there are few questions that need to be answered. If you are a long term investor looking for a 10 plus years horizon then there is no point to worry now. If you have funds for buying big lots we can use any option strategy to get META stock at a cheaper rate. If you are looking for a near term you can use for Chart patterns, moving averages and other indicators to decide your buy or sell levels

5. Conclusion

Looking at the Fundamental and Financial numbers it concludes 

1. Long term META is a very good investment
2. Even if performance if low in upcoming years its valuation will be still high than the current META price
3. Valuation wise it undervalued by around 31% which makes it a good buy for now
4. If you are long term investor this cyclical trend is not a worry

6. FAQs