Source: PaxForex Premium Analytics Portal, Fundamental Insight
As Meta Platforms stock has fallen more than 60% over the past 12 months, many investors are probably taking a closer look at the company. Has the sell-off gone too far, making the social media company's stock a bargain? A closer look reveals that the stock does look cheap today. But that doesn't mean investors should rush to buy the stock. Indeed, it may make sense to take a wait-and-see attitude when it comes to Meta stock.
As a technology company whose revenues are closely tied to the digital advertising market, it makes sense that parent company Facebook's top line would face some headwinds in a time of macroeconomic uncertainty. But the problem with Meta's top-line slowdown is that it's not just due to the macroeconomic situation. One of the main factors that put pressure on Meta last year was a change in the way Apple's iOS platform measures and tracks advertising. This ultimately disrupted the effectiveness of advertising on Meta's platform, exposing a chink in the company's armor.
Meta founder and CEO Mark Zuckerberg called the problem "signal loss." Although the company is working to solve this problem by increasing its users' understanding to make it easier for people to interact with companies in their apps, obstacles remain. Despite this, however, Zuckerberg said in his third-quarter earnings call that he is "confident" that the company can build the infrastructure necessary to "emerge from this downturn with even better ad products and a significant technological advantage over other industry players."
Another red flag for investors is the company's continued spending on developing products and services for the meta-universe, even as the fledgling segment is losing huge amounts of cash. The company's reality labs segment, which includes consumer hardware, software, and content related to augmented and virtual reality, posted a $9.4 billion loss from operations for the nine-month period that ended Sept. 30. Despite such disappointing results, Meta seems intent on keeping the reality labs segment as a priority. In an updated Q3 report, Meta management said it expects "significant growth" in operating losses in this segment next year.
These red flags, combined with a challenging macroeconomic environment, are putting a lot of pressure on Meta. Third-quarter revenues are down 4% YoY, and Q3 net income is down 52% over the same time period.
While Meta's current position cannot be called prosperous, investors can take solace at least in the fact that Wall Street has already assessed the gloomy outlook. At the moment, the stock is trading at 11 times earnings.
Despite the seemingly low stock price, investors should not feel that they need to rush and buy the stock. Declining profits amid two major red flags -- iOS problems and huge losses in the reality lab segment -- are enough of a cause for concern to dismiss stock purchases entirely. While the company may smoothly overcome these problems, making the current stock price look like a bargain in hindsight, there is also the possibility that these problems are a sign of future trouble.
Fortunately, investors don't need to form an opinion about every stock. When it comes to Meta, it's best to hold off and put the stock in the "not sure" pile, watching it from afar.
As long as the price is above 108.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 116.73
- Take Profit 1: 124.00
- Take Profit 2: 138.00
Alternative scenario:
If the level of 108.00 is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 108.00
- Take Profit 1: 97.00
- Take Profit 2: 88.00
