Mark Zuckerberg, CEO of Meta Platforms
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Wednesday just might be the day that shares of Meta Platforms, the parent company of Facebook and Instagram, bounce off rock bottom.
Shares in the social media giant have had an abysmal time of late. Following weak quarterly earnings and a dismal outlook, Meta (ticker: FB) went into free fall last week, notching the largest one-day loss in market capitalization in U.S. history on Feb. 3, when the stock price collapsed by 26%.
As of Tuesday’s close, the shares have fallen some 42% from their all-time high in September.
Things may be looking up: Meta stock was jumping 2.7% Wednesday, outpacing buoyancy in the wider technology sector. The Nasdaq Composite, which tracks some of the biggest U.S. tech stocks, rose 1.5%.
Are investors finally buying the dip? Market participants were already talking about doing just that when Meta began its nosedive last week, and this could represent a first wave of new bets on the stock.
“We have a significant position in Facebook, and we think it’s a great opportunity for long-term investors to buy a great franchise that has sold off on very short-term considerations,” Christopher Rossbach, the chief investment officer at Anglo-Swiss asset manager J. Stern & Co., told Barron’s.
Statistically, the stock looks cheap. Meta is trading at a multiple of 17 times this year’s expected earnings, which is a 40% discount to its peers. And that is a firmly forward-looking measure: The price-to-earnings (P/E) ratio uses a figure for profits based on consensus estimates among analysts surveyed by FactSet. That earnings number was sharply lowered after Meta released its revised outlook.
“It’s extremely cheap,” Rossbach said. “If you think about what kind of valuations are paid for different types of businesses, I think given the scale and sustainability, it’s a tremendous opportunity at these prices.”
Analysts are broadly bullish on Meta where it stands now. The average target price among brokers — a figure that was overwhelmingly revised following the company’s earnings — is $329.28, implying 50% upside from Tuesday’s closing level. That target is also 2% higher than where Meta’s stock stood before its historic fall.
All this being said, there remains a wider debate to be had about whether, genuinely, Meta stock is attractively valued right now.
The lack of substantial rebound to date suggests most investors have not, in fact, bought the dip, and, as Barron’s reported, that “reflects the serious issues Meta raised with its earnings.”
Wall Street has been trying to make sense of Meta’s results. The most dire interpretation suggests that users are leaving the platform for rivals like TikTok, and that advertising revenue is drying up as a knock-on effect from changes to Apple‘s (AAPL) privacy rules.
These pressures might have been more digestible if they were part of a wider trend. Indeed, social media stocks Snap (SNAP) and Pinterest (PINS) both nosedived following Meta’s earnings on fears these companies would face the same fate. But in the case of Snap and Pinterest, this wasn’t the case; both companies have since reported earnings that show they’re not experiencing all the same problems.
Meta’s problems look isolated to Meta. And that could make the future tougher to predict.
But for the bulls, like Rossbach, these headwinds are short term, and largely don’t matter.
“If you look at the underlying numbers that they’ve delivered, they’re still extremely strong. I think the platform has lots of levers across all three of its major applications to be able to continue to deliver value for its users,” the asset manager said.
Rossbach noted the opportunities for e-commerce via Instagram, and said that it was important for CEO Mark Zuckerberg to note pressure from TikTok, both as a matter of fact, and as Meta faces scrutiny from regulators over competition concerns.
“The fact that the shares have reacted so strongly in particular to the perceived slowdown in growth of users — I think it’s an overreaction,” he added, noting that the company’s 3.6 billion users represent a healthy share of people with internet access able to reach its platforms. “It’s something that just simply has to be understood as part of the maturing of the company.”
Moreover, the asset manager highlighted how Meta has faced apparently existential threats before, including questions over whether it would be able to reach users via mobile and if the company could monetize different services.
“They have a track record of being able to figure those things out,” Rossbach said.
The price action Wednesday could signal that the worst is over for Meta. Maybe it is as investors are piling into the shares again. But there’s no question that the group faces challenges, and that could be reflected in the stock price over the longer term. There may be dip buyers, but that doesn’t mean a rally is sure to follow.
Write to Jack Denton at jack.denton@dowjones.com
Source: finance.yahoo.com