Meta Platforms (META), the tech giant formerly known as Facebook, made a surprising recovery after releasing its earnings report in April, sending its shares up 13%. Unfortunately, the stock has plummeted by more than 55% from last year’s trillion-dollar peak. Despite this, I am bullish on META stock.
Its first-quarter earnings showed a recovery in daily active users for Facebook, comfortably beating analyst estimates. Considering the company’s positive quarterly results, robust social media business, and the potential of the metaverse, Meta makes a safe long-term investment at its current valuation.
Unluckily, META stock shed much of its market value because investors seemed to be concerned over the company’s declining growth. Moreover, its foray into the relatively unknown in the metaverse concerns investors. However, it has managed to stay 340% above its IPO from 10 years ago. This factor says a lot about the stock’s potential to increase value and reward its holders.
Meta’s Quarterly Earnings: A Much-Needed Positive
The best information for Meta is that people aren’t leaving Facebook. According to Meta’s CEO, Mark Zuckerberg, “more people are using Facebook today than ever.” Facebook’s active users rose from 1.93 billion to 1.96 billion, signaling plenty of growth prospects for the company.
The Facebook parent company is undergoing a rebrand. Mark Zuckerberg announced that the company would mainly focus on the metaverse instead of the social media business. The good side for Meta is that the company has plenty of cash on its balance sheet, so it can invest in operations to stay committed to its vision.
The company’s earnings per share surpassed analyst expectations by 17 cents, which makes Meta Platforms exciting. According to the earnings report, Meta enjoyed 15% more advertising impressions compared to the first quarter of 2021.
Meta generates almost all of its revenue from the advertising side of the business, so the growth in advertising impressions holds immense potential for the company to grow further.
According to Ronald Josey, a Citigroup (C) analyst, Meta’s advertising revenue growth can jump in the second and third quarters of 2022 as headwinds decline. If this is true, Meta stock can potentially recover from here.
A Temporary Slowdown
Low sales growth along with increased expenses convinced investors that Meta’s growth days were coming to an end. Analysts predicted that Meta’s revenue would only increase by 7%. However, if we take the long-term approach and look beyond 2022, Wall Street’s expectations concerning Meta are bullish.
The company’s increased expenditures on short-form videos for Instagram and Facebook are helping it remain competitive against TikTok. If Meta continues to monetize its apps, advertisers won’t help but invest in these apps.
The family of Meta’s apps entertained more than 3.6 billion people in the first quarter of 2022, and this vast audience will stay gainful for advertisers. So, Meta’s attractiveness is undoubtedly in place.
FB is the cheapest FAANG stock as it is trading at 13.5 times forward earnings. This multiple isn’t good for the company as it implies that investors aren’t hopeful about Meta’s ability to overcome its external challenges – but here’s a twist. Market expectations concerning Meta are so low that even a slightly positive development will result in the stock value spiking.
So, actions such as stability in its advertising business, lesser inflationary pressure, an end to the Russia-Ukraine war, or tighter controls in Reality Labs will bring about a significant change in Meta.
A Bright Future
Based on the stock’s performance last year, it seems like the market doesn’t believe that Reality Labs has the potential to yield profits. The market, though, is expected to grow by more than 30% to reach $81 billion by the end of 2030. The figures indicate that VR will dominate the computing segment for the next generation, and Meta has a bright chance of dominating that market.
Meta’s $2 billion acquisition of Oculus back in 2014 signaled the rise of its dominance and gave it an edge over competitors, including Microsoft (MSFT) and Apple (AAPL).
Wall Street’s Take
Turning to Wall Street, META stock maintains a Moderate Buy consensus rating. Out of 37 total analyst ratings, 28 Buys, eight Holds, and one Sell rating were assigned over the past three months.
The average META stock price target is $272.14, implying 62.4% upside potential. Analyst price targets range from a low of $180 per share to a high of $370 per share.
Final Word on Meta Platforms
Meta’s apps are consumed by almost half of the entire world’s population. Moreover, it still has a whopping $43.9 billion in cash and cash equivalents, enabling it to make new investments and acquisitions.
Once the advertising side flourishes and we get a better understanding of where the metaverse plan is heading, Meta should gain a higher valuation and yield moderate gains for patient investors.