Today (October 26) we will learn the results of Meta Platforms (Facebook), a social media company that is part of the five Silicon Valley tech giants known as FAANG (Facebook, Amazon, Apple, Netflix and Google). The environment for the company appears to be unfavorable following the published disappointing results of competitor Snap.
Metaverse future, or just a fantasy?
Meta has not enjoyed a good run since the beginning of this year. The Metaverse project may have been negatively received by investors, as it could be seen from the company's share price drop of more than 59% since the beginning of the year. The company's CEO Mark Zuckerberg seems to have decided to put everything on the line, which has brought, due to the project's attention, more than $13 billion in costs so far. In addition, we could hear many rumors from the media about the internal situation of the company, or the perspective of employees. However, let's try to verify all assumptions based on hard data regarding the company's core business.
Meta Platforms' performance and financial position
Last quarter was the first period in which Facebook lost about 1.4 million active users. The company reported that the situation has improved. However, it could be assumed that investors especially decided to watch the development of the company's new project. Analysts predicted earnings per share EPS of 1.89 (previously 2.46).
According to one of Altimeter Capital's major shareholders, CEO Brand Gerstner in an open letter to the company, “Meta needs to rebuild trust with investors, employees and the tech community to attract, inspire and retain the best people in the world. [...] Meta shares have declined 55% over the past 18 months (compared to an average of 19% for its big-tech counterparts). The P / E ratio fell from 23x to 12x and is currently half the average P / E ratio of peers. Importantly, this decline in stock prices reflects lost confidence in the company, not just bad sentiment in the market. " In addition, Tuesday's problems with WhatsApp, which stopped working for several hours, may give us an environment of potentially extreme negative sentiment on the company's shares.
As Gerstner mentioned in the letter, it seems that valuation has significantly detached itself from the company's core business. Facebook does not seem to have stopped making money from sales, however, it has clearly seen a slowdown in advertising sales, as could be seen from last quarter's results, in which the company reported its first y/y revenue decline. It fell from $29.08 billion to $28.82 billion. At the same time, EBITDA fell from $14.35 billion to $10.33 billion.
Everything may depend on the cost of the Metaverse?
With such seemingly pessimistic sentiment for this company, all eyes may be on the update and further plans for the Metaverse project. A key piece of information would perhaps turn out to be the subsequent costs incurred for this project. However, someone could get the impression that most of the negative comments have been factored into the stock price. But would the stock market say "buy when the blood pours" be confirmed?
What does Wall Street think of Meta Platforms' stock price?
Source: Conotoxia MT5, Facebook, Weekly
According to Market Screener, the company has 55 recommendations, most of which are buy recommendations. The average target price is set at $209.97, more than 50% higher than the last closing price. The highest target price is at $466, and the lowest is at $150.
Author: Grzegorz Dróżdż, a Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
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Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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