$500 Billion Removed From Meta Platforms Market Value: Should You Buy Now?

Metaplatforms (FULL BOARD -4.51%) is having a forgettable year in 2022. The company formerly known as Facebook has seen roughly 50% of its market value disappear. A number of headwinds, including privacy policy changes at Applesupply chain shortages, competition, and the Russian invasion of Ukraine, are all playing a role in driving down Meta’s share price.

That said, the sell-off is creating an opportunity for long-term investors who can resist these short-term headwinds. Let’s look at Meta’s outlook and valuation and consider whether Meta Platforms stock is a buy right now.

FB Market Cap Data by YCharts

Meta Platforms has a user base like no other

With all the talk about transforming into a metaverse company, it can be easy to overlook Meta’s social media dominance. Its family of apps, which includes Facebook, Instagram, Messenger and WhatsApp, has more than 2.87 billion daily active users. All of their apps are free to join and use. Meta earns money by displaying ads to those who browse its apps.

In that sense, it has done an excellent job, growing revenue from $40 billion to $118 billion from 2017 to 2021. You can understand why marketers covet the opportunity to advertise with Meta. There is hardly any other platform where advertisers can achieve the kind of scale that Meta can offer.

In addition, social media users on Meta apps voluntarily disclose information about themselves, such as their marital status, where they went to college, and what their favorite sports franchises are. This information is then used to deliver targeted advertising that is more effective than spending without the aforementioned data about individuals. For example, there is little value in showing ads for a Los Angeles Clippers game to a fan who has said that his favorite team is the Miami Heat.

FB Revenue Chart (Yearly)

Earnings data (annual) from FB by YCharts

The strong ROI may explain why marketers keep coming back to Meta Platforms and why revenue has skyrocketed the way it has over the years. Of course, Apple’s privacy changes make it harder for Meta to collect user data, which then makes it harder to sell targeted advertising, but Meta may find a solution. For example, you can add features to your platform that encourage users to share even more information directly with Meta.

The biggest concern is growing competition from short-form video site TikTok. So far, Meta has managed to maintain extremely high customer engagement and retention. Meta’s 2.87 billion daily active users represent a 6% increase from the same period last year. In other words, it has added a whopping 150 million daily active users in that time. For now, people spend time on TikTok in addition to the time they spend on the Meta family of apps. If that usage mix changes to start taking time away from Meta, then you’ll have a bigger problem on your hands.

A person using a desktop computer.

Image source: Getty Images.

Meta shares are good value despite the risks

Free Cash Flow Chart at FB Price

FB Price to Free Cash Flow Data by YCharts

That said, with a price-to-free cash flow multiple of 14 and a price-to-earnings ratio of 15, Meta shares are good value even when accounting for short-term risks. Billions of people around the world have developed the habit of browsing the Meta family of applications on a daily basis. It’s going to be hard for a competitor to break those habits, especially since the apps are free to use. And marketers will always be willing to pay for the opportunity to influence people.

So, to answer the question posed in the title, yes, the Meta Platforms sell-off has made it a great stock to buy.

Add Comment