Steer clear of Meta Platforms, this Scotia Wealth advisor says

Social media giant Meta Platforms (Meta Platforms Stock Quote, Charts, News, Analysts, Financials NASDAQ:META) offered up a spooky tale to shareholders on Wednesday, with the company’s third quarter earnings painting a darker tone befitting of the Halloween spirit. Management’s forecast for the fourth quarter is gloomier than expected, while its virtual reality segment is projected to continue losing billions in 2023. 

It’s enough to frighten away the bravest of investors, and you can put Scotia Wealth manager Stan Wong in that bunch — Wong gave up on Meta earlier this year and says he’s not coming back to the stock anytime soon.

“We’re out of Meta at this point,” said Wong, speaking on BNN Bloomberg on Wednesday. “Really, this name is almost more of a value name at this point and trading around 15x forward earnings and price-to-sales of about 30.1x, which is not bad for a tech company.”

“But there don’t seem to be any major catalysts ahead. Looking into the future, it’s all about the metaverse, but that’s probably some time away at this point,” he said.

Shares dropped six per cent on Wednesday after Meta Platforms’ Q3 featured softer than expected earnings at $1.64 per share compared to the $1.89 average from analysts, while revenue was slightly ahead at $27.71 billion compared to the Street’s call at $27.38 billion. At the same time, revenue was down four per cent from a year earlier while costs and expenses increased by 19 per cent to $22.05 billion. (All figures in US dollars.)

“While we face near-term challenges on revenue, the fundamentals are there for a return to stronger revenue growth. We’re approaching 2023 with a focus on prioritization and efficiency that will help us navigate the current environment and emerge an even stronger company,” said founder and CEO Mark Zuckerberg in a press release. 

A dropoff in online advertising spending due to macro pressures is weighing down the company, which guided for fourth quarter revenue between $30 and $32.5 billion, which would be lower than the $33.7 billion topline for the fourth quarter 2021.

Meta shares did very well in the early days of the COVID-19 pandemic, as people flocked in greater numbers to online platforms in the stay-at-home economy of 2020 and 2021, but the stock has been heading south for over a year now. META reached its peak of about $378 per share last September, back when the company was still called Facebook, but a number of steep plunges over intervening months have brought the stock to now around $130 per share — about a 66 per cent drop in value.

Wong says investors will want to avoid META until the company’s growth path looks clearer.

“There have been some negative revisions to the company’s free cash flow and topline growth, which is obviously not positive for the stock,” said Wong. “There’s some softness in ad spending, as we saw with YouTube sales [on Tuesday], and that’s happening with Facebook and Instagram and so forth.”

“Behind the scenes as to the changes with Apple’s iOS system and platform and how they track ads for companies like Facebook and Meta, that has been a challenge,” he said. “So, we’re out of the stock at this point. Down the road, we can foresee that maybe they start turning around but I’m not sure if it’s anytime too soon.”