You’ve gotta own Facebook/Meta Platforms, this investor says

The rebranding by Facebook as Meta Platforms Inc. (Facebook Stock Quote, Charts, News, Analysts, Financials NASDAQ:FB) may have some folks at a loss on where the social media juggernaut is heading but if you’re going to bet on one company to blaze the trail into the new metaverse, it’s this one. So says Scotia Wealth Management’s Greg Newman, who advises investors to stock up on the company while it’s still cheap.

Facebook launched last week its new image as Meta Platforms, saying the concept will stand out as the unifying force among the company’s various holdings which include popular social media platforms Facebook, WhatsApp, Instagram and Messenger. 

In prophetic tones Facebook founder Mark Zuckerberg delivered his good news to the masses via blog post, saying it’s time for his company to adopt a brand that more truly expresses its wider aims within the developing metaverse, the term for a virtual space where real people can interact with computer versions of products, entertainment and other virtual people.

Zuckerberg said while social media apps will remain a focus, the root motive of his empire has and will always be “bringing people together” and thus with the metaverse seen as the next step in the evolution of the Internet, Facebook the company required the brand update. 

“The defining quality of the metaverse will be a feeling of presence — like you are right there with another person or in another place. Feeling truly present with another person is the ultimate dream of social technology. That is why we are focused on building this,” said Zuckerberg, CEO of the $912 billion company that makes money by selling ads.

With a nod to the problems Facebook has had over the years related to users’ privacy and mental health, not to mention harms caused by people who have used Facebook and other social media platforms over the years to advance their agendas, Zuckerberg said there will need to be an ethical component to the new tech reality.

“Privacy and safety need to be built into the metaverse from day one. So do open standards and interoperability. This will require not just novel technical work — like supporting crypto and NFT projects in the community — but also new forms of governance. Most of all, we need to help build ecosystems so that more people have a stake in the future and can benefit not just as consumers but as creators,” Zuckerberg said.

As a publicly traded company, while not providing the outsized returns some other tech giants have managed over the past two years Facebook has still done well, with the stock rising by 33 per cent in 2020 and now up 18 per cent year-to-date in 2021, although FB is down about 15 per cent over the past two months.

But Newman says Facebook is all the more attractive considering the growth potential still in front of the company.

“We all know the bad news that’s come out over the last little while and there’s a need for improving regulations and tighter controls, and the stock has been punished on that over the last few weeks. But when you really step back, these guys have 2.91 billion monthly active users — that’s like a third of the planet. How many ways are there to monetize that? There are so many ways and the average spend is maybe $10 per user,” said Newman, senior wealth advisor at Scotia Wealth, who spoke on BNN Bloomberg on Friday.

“They’re trying to compete more with TikTok, which will probably bear fruit. Trying to build this Metaverse is a risk. They’re going to spend $10 billion and they’re probably going to spend more for something that’s unknown,” he said. 

Facebook saw revenue jump 35 per cent year-over-year in its third quarter 2021, delivered on October 25, hitting $29.01 billion, while earnings grew by 19 per cent to $3.22 per share. Analysts had been expecting revenue of $29.57 billion and EPS of $3.19 per share.

Facebook registered 1.93 billion daily active users, up six per cent from a year earlier, while monthly active users were 2.91 billion, also up six per cent.

Newman said Facebook’s track record of success in building out its platforms and their reach bode well for the company’s chances of making good on its promises with the metaverse. 

“Facebook has many ways to make money and fund these initiatives into the metaverse. So that’s the best way that I would play it,” Newman said.

“This management team, you don’t have to like everything they’ve done but they did bet on the [social media] space before everybody else and they built this empire. I think they’re a good team to bet on this next phase,” he said.

“They’re at the forefront of our future, and you can buy them at a really reasonable valuation trading around 20x 2022 with about a 16 per cent growth rate. So, I think the stock works and I think you can score points with it,” he said.