Facebook-parent Meta Platforms (META) recently posted its first ever quarterly decline in revenues and a much wider drop in profits at $6.7 billion, or $2.46 per share, as against $10.4 billion, or $3.61, observes Todd Shaver, editor of Bull Market Report.
The drop in earnings can mainly be attributed to the massive $2.8 billion loss at Meta’s Augmented Reality projects, which comes under the Reality Labs division, currently spearheading the company’s vision for the metaverse. During the quarter, the company saw growth across its family of apps, which includes Facebook, Instagram, and WhatsApp.
In addition to the substantial macro headwinds, the impact of recent iOS privacy changes by Apple (AAPL) continue to weigh down on the platform’s ad targeting capabilities, hence the decline in advertising rates. Beyond this, Meta’s platforms continue to face competition from the likes of TikTok and YouTube Shorts, making the company’s lack of major competitive moats evidently clear.
The pivot to the “Metaverse” is aimed at addressing this critical issue, with the company owning and controlling access on the hardware and software side with the help of Oculus. It still remains to be seen how the Metaverse reshapes the way we interact with the world and each other, but we remain optimistic.
Following a monumental drop of nearly 60% YTD, the stock currently has value investors circling for a piece of the action. Trading at just 4 times sales, and 12 times earnings, it is now a textbook value pick with a growth segment attached — a stock that has effectively bottomed out. With $5.1 billion in share repurchases during the quarter, and over $24 billion in pending authorizations, there is plenty of cushioning against downsides.
Leaving aside market reactions in recent months, Meta is a remarkable business with high margins and profitability, and anyone who doubts the metaverse need only study the move by Amazon (AMZN) into cloud computing with AWS.
Reality Labs could very well be Meta’s AWS, and with $40 billion in cash, just $16 billion in debt, and $58 billion in cash flow, it has sufficient resources to make its vision a reality. Our Target is $215.