- Meta Platforms, Inc. stock was a great value play in November 2022, but it has since rallied and is now trading at high multiples.
- The company's competitive position has been challenged by Amazon, Apple, and TikTok, impacting its ad targeting and share of user attention.
- While Meta has a strong position in the VR market with its Quest headsets, the segment is currently not large enough to impact the company's overall performance.
- In this article I make the case that Meta Platforms, Inc. stock is fully valued at today's prices.
The article discusses the stock performance and valuation of Meta Platforms, Inc. (formerly Facebook, NASDAQ: META), offering insights into the company's journey since November 2022. The key points in the article are as follows:
- Stock Performance in November 2022: The article mentions that Meta was considered a value play in November 2022 when its stock price dipped to the $80-$90 range. The decline was due to a disappointing Q3 earnings report, which showed a substantial drop in free cash flow (FCF) primarily attributed to a one-time increase in capital expenditure related to new data centers.
- Recovery and Strong Performance: The article acknowledges that Meta made a remarkable recovery and became one of the best-performing large-cap tech stocks in 2023. Subsequent earnings releases showed the FCF decline was due to one-time charges, and Meta's FCF began growing again.
- Current Valuation: The article points out that Meta's stock is now starting to look expensive, trading at high multiples, such as 37 times earnings, 6.9 times sales, 6 times book value, and 14.76 times operating cash flow. It also notes that the price-to-FCF ratio remains relatively high.
- Competitive Position: The article highlights challenges to Meta's competitive position, including the growth of Amazon's advertising platform, Apple's app tracking transparency policy (ATT), and the rise of TikTok, which have impacted Meta's ad targeting and competition for user attention.
- New Products - Virtual Reality (VR): The article mentions that Meta has entered the VR market with its Quest product line, where it holds over 50% market share. The Quest headsets offer users a library of VR applications, and this segment is discussed as a potential growth area for Meta.
- Bottom Line: In conclusion, the author suggests that Meta is now fairly valued but not undervalued, which makes it neither an attractive long nor short candidate. The article points out that while Meta's core advertising business is profitable, increased competition in the ad-tech market indicates that future growth may not be as rapid as in the past.
It's essential to note that this analysis represents the author's perspective, and individual investors should conduct their research and consider their investment goals and risk tolerance when making investment decisions. Additionally, stock valuations and market conditions can change rapidly, so investors should stay updated on the latest developments.
