Facebook’s market cap fell below $600B. Time to buy?

Posted: 10 February 2022 10:41 pm
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The Metaverse bet could pay off in the long run, but there are headwinds for investors along the way.

Just six months ago, Facebook’s parent Meta Platforms (FB) became one of the few US companies ever worth over $1 trillion. Today, the company has lost investors’ favor, shedding more than $400 billion in market value since its peak in September 2021.
Is now a good time to buy Facebook, or is there more trouble ahead?

Facebook reported weaker-than-expected fourth-quarter results

Meta reported a net income of $10.29 billion, or $3.67 a share. Its revenues rose 20% year over year to $33.67 billion. Analysts had slightly more optimistic forecasts for earnings of $3.85 per share and revenue of $33.4 billion.
The company expects first-quarter revenue to be between $27 billion and $29 billion, while Wall Street expected revenue of $30.2 billion.
Those numbers started the recent drop. Shares have gained enough this week to pull Meta’s market cap back above $600 million.

Facebook faces strong headwind

During the earnings call last week, CEO Mark Zuckerberg noted that TikTok is competing with Facebook and is retaining user attention more successfully than Facebook. “People have a lot of choices for how they want to spend their time, and apps like TikTok are growing very quickly,” Zuckerberg said. Facebook will combat this by adding short-form videos like reels.
“So as a result of both competition and this shift to short-term — short-form video, as well as our focus on serving young adults over optimizing overall engagement, we’re going to continue to see some pressure on impression growth in the near term.”
This causes one major issue — Facebook finds it hard to attract young users to its platform.
Another issue noted by Meta’s CEO concerned Apple (AAPL) iOS changes and regulations in Europe, both of which have made it difficult for Facebook to offer personalized ads. Apple’s restriction for tracking users would decrease Facebook’s 2022 sales by up to $10 billion, according to Meta CFO Dave Wehner.

Is it a good time to buy Meta Platforms?

Meta Platforms (FB) recently traded at around $225. Last time it traded at this level was back in July 2020. If you find the company and its Metaverse future appealing, this could be a decent entry point.
However, the recent admission by Meta’s officials regarding the challenges they expect in 2022 caused some analysts to reevaluate their targets for the next 12 months. For example, analysts from DZ Bank have set a $225 target, while China Renaissance added a price target of $280. Those numbers offer limited gains in the short term.
Other analysts, though, have a more positive outlook, with targets ranging from $300 to $375. The average target of all analysts stands at $340 for the next 12 months, which is around 50% higher than the current price.

Meta is also buying back its stock

Meta bought back $6 billion worth of shares last month, according to Barron’s estimates. It also bought back a record of $19 billion in the fourth quarter and a total of $44.5 billion during the entire year of 2021. This signals the company is bullish on the future and considers the current stock price a bargain.

There are risks to consider

Even though Meta plans to invest heavily in the growing Metaverse — basically, digital worlds in which people interact through avatars — there’s no guarantee that the effort will pull in more users. This has been an issue for the company in the past months, and it may continue to be an issue in the near future.
At the time of publication, Kliment Dukovski did not own any of the companies mentioned in the article.

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