It’s been a few months now since Facebook rebranded as Meta Platforms (Meta Platforms Stock Quote, Charts, News, Analysts, Financials NASDAQ:FB) and while the jury is still out on how that strategy will turn out, early indications seem less than rosy with the stock now down by a third after a poorly received quarterly report. But investors should be looking more long-term, says portfolio manager Gordon Reid, who points out that Facebook’s global footprint can’t be denied — and now the stock is trading at a discount, too.
“We like Meta’s business,” said Reid, CEO of Goodreid Investment Counsel, speaking on BNN Bloomberg on Tuesday. “Obviously, there’s a transformation happening. We heard about that last quarter when they renamed or rebranded the company and talked about the metaverse.”
Meta Platforms saw its share price tumble last week as the market reacted to an earnings miss in its fourth quarter 2021. The company saw revenue grow by a solid 20 per cent to $33.672 billion for the fourth quarter, beating analysts’ consensus expectation at $33.4 billion, and giving the company a full 2021 revenue line of $117.929 billion, up an impressive 37 per cent. (All figures in US dollars.)
“We had a solid quarter as people turned to our products to stay connected and businesses continued to use our services to grow,” said Mark Zuckerberg, Meta founder and CEO, in a press release. “I’m encouraged by the progress we made this past year in a number of important growth areas like Reels, commerce, and virtual reality, and we’ll continue investing in these and other key priorities in 2022 as we work towards building the metaverse.”
But Q4 EPS was $3.67 per share compared to the Street consensus at $3.84 per share and monthly active users were also a disappointment at 2.91 billion versus the expected average at 2.95 billion. Further, management called for first quarter 2022 revenue to be between $27 and $29 billion, representing a year-over-year growth rate of between three and 11 per cent, whereas the expectation was for $30 billion.
Reid says it’s the reality that competition will factor into Facebook’s future but that doesn’t mean the company and stock won’t be successful.
“Last week, they came out and said, Listen, there’s more competition,” Reid said. “Tik Tok is taking users away — Facebook or Meta has their own version called Reels but it’s not competing as vigorously. They also talked about the changes in Apple’s policies on privacy and the ability for people to opt out so it doesn’t allow advertisers to get deeply into your personal preferences when you use Apple apps. And that’s hurting them a little bit.”
“But on the other side, the stock is trading at a discount to the market and it’s still growing at a faster rate than the market,” Reid said. “They’ve got a market cap of about $600 billion right now and they’re going to spend $30 billion this year on capex. They’ve got a buyback program of $33 billion which is about five per cent of their market cap. You have to have a little bit of faith that they’re going to be able to transform into a new version of themselves.”
Opinions vary substantially on Meta’s path ahead, with some seeing a potential replay in the metaverse of Facebook’s problems in dealing with privacy, security and social responsibility related to its original platform.
“I think all these big social media companies are going to face a challenge with the metaverse [but] I will single out Facebook as the worst performer in this area,” said Natasha Lamb, managing partner at Arjuna Capital, who spoke on CNBC on Monday. “What we saw with Meta after the whistleblower testimony is that they changed their name a week later — that’s not business strategy, that’s a distraction and there are reasons to be concerned.”
“The same issues Facebook is reckoning with on social media — discrimination, human and civil rights violations, inciting violence — those all could be worse in the metaverse, so it’s not just [a problem] for Facebook, it’ s for everybody, but because Facebook has done such a poor job managing its platform we really do question their social licence to operate,” Lamb said.
Facebook’s share price did well over the pandemic, going from the low $200 range in early 2020 to as high as $370 per share by August 2021. But with the market rotation away from growth stocks over the past few months the stock had pulled back to about $300. That was before the Q4 earnings which has knocked FB down to $225.
Reid says investors have to be able to respond to the market’s ups and downs and that means selling shares when a stock is doing very well, as was the case for Facebook last year.
“There’s a lot of opportunity here [with Meta], but you’ve got to manage all of these situations,” Reid said. “We sold 30 per cent of our Facebook in June of 2021 at $340. At the time people said, Why did you do that? This is a great company growing very quickly.”
“You know, if you’re patient it proves out and there’s nothing wrong with risk aversion techniques,” he said.