Meta Platforms is my Top Pick, says Bruce Murray

It’s been a not so glamorous coming out party for Meta Platforms (Meta Platforms Stock Quote, Charts, News, Analysts, Financials NASDAQ:FB) over the past few months as the social media conglomerate attempts a rebranding even as its share price continues to crater. Now well into its 52-week lows, it’s like the pandemic and all those stay-at-home Facebook viewers never happened, with FB now trading at pretty much where it was pre-COVID.

And with prevailing winds turning against growth-oriented names market-wide, regulatory troubles still on the docket and a big question mark as to whether the company’s metaverse gamble will pay off, there’s a lot to consider with a stock like FB.

For some perspective, we turn to portfolio manager Bruce Murray of The Murray Wealth Group, who not only likes Meta’s chances but is now calling it one of his top picks for the 12 months ahead.

“Facebook was doing extremely well up until they announced a quarter in which the revenue growth was fine but I think they’re under a lot of political pressure and so it might have been a kitchen sink sort of quarter where they threw everything in,” said Murray, speaking on BNN Bloomberg on Tuesday. 

“There are viewer losses to TikTok, there’s lower advertising opportunity because of Apple [but] both these things can be fixed. They’re working on something called reels, which will be a competitive product to TikTok and things like that. And on the meta platform itself and going to the meta universe, if they get there and they’re the lead and people follow it will be a huge win,” he said.

Meta Platforms’ revenue grew by 20 per cent for its fourth quarter 2021, hitting $33.672 billion and landing above the Street consensus of $33.4 billion. Growth-wise, 2021 was a great year, as FB posted revenue up 37 per cent to $117.929 billion. (All figures in US dollars.)

But earnings and monthly active users both came under analysts’ expectations at $3.67 per share and 2.91 billion MAUs versus the consensus calls for $3.84 per share and 2.95 billion.

And while it’s hard to argue with a business that’s pulling in earnings on that scale and still posting amazing topline growth, the market did just that, dropping Meta Platforms by over 20 per cent in trading following the quarterly release. The problem? Guidance on first quarter 2022 revenue was lower than expected ($27-$29 billion from management compared to the Street average of $30.2 billion) and revenue per user numbers were also low at $11.57 for the Q4 compared to the expected $11.38 per user. 

Notably, the market, fed by an overall rotation away from tech and high-growth names, hasn’t shown Meta much love in the weeks since, with the stock down a further 20 per cent over February and early March.

It’s a common theme in tech where a company that’s led the industry for years starts feeling contenders nipping at its heels, and Facebook and now Meta has been in this situation many times before on its way to the top. Each time the company has responded to the challenge, either by absorbing a name like Instagram or WhatsApp or doubling down on its international expansion, to the point where we’re talking about a company close to hitting 3 billion users on its Facebook platform but also 2 billion on WhatsApp and another 1.5 billion on Instagram, creating by far the biggest social media empire on the planet. 

And it’s still growing, says Murray.

“The stock is now selling at 12x earnings for a company that’s extremely profitable still, its revenues are still growing at 15 per cent,” Murray said. “If they just stopped doing all their sundry stuff the earnings would skyrocketing and they’d probably [start] buying their stock back.”

“So, we think it’s extremely cheap and it’s another good turnaround story,” he said.

Facebook recently received a target drop from analyst Thomas Campion of Piper Sandler who took his price target from $301 per share to $240 per share in an update to clients on Tuesday. Campion nonetheless reiterated his “Overweight” rating on FB, saying that the transition to a metaverse-focused company will continue to take its toll and that the months of March and April will be “particularly onerous” along with the “dismal” first-quarter guidance offered by the company in its fourth quarter report.

Meta says it plans to spend between $29 and $34 billion on capital expenditures over 2022, with investments in data centres, servers, network infrastructure and office facilities targeted as prime capex, with a focus on building out the company’s AI capabilities.

“As we discussed previously, this range reflects a significant increase in our artificial intelligence and machine learning investments, which will support a number of areas across our Family of Apps. While our Reality Labs products and services may require more infrastructure capacity in the future, they do not require substantial capacity today and, as a result, are not a significant driver of 2022 capital expenditures,” said Meta Platforms in a February 3 press release.