Meta Platforms (META) has repurchased shares totaling around $14.7 billion so far in 2022. The social media titan, best known for Facebook, bought $5.08 billion of its stock this past quarter — but what does it all mean? Is now the time to buy, or has META become a value trap?
Although management has been on a spending spree, this year’s buybacks have slowed significantly compared to those of past quarters. In Q3 2021 and Q4 2021, Meta spent $14.4 billion and $20.1 billion on stock buybacks respectively. Now that shares are selling at multi-year lows, shouldn’t the pace of buybacks accelerate?
With META, the answer to this question isn’t black and white. The company has a lot going on, which is why it is even more intriguing at its current valuation.
Despite Issues, Meta is a Solid Long-term Investment
In Q2 2022, Meta reported its first year-over-year decline, causing share prices to dip.
Several variables contributed to slowing growth, such as competition from TikTok, a slowing advertising market, Apple’s user privacy changes, and ongoing macroeconomic issues — including the fallout from a strong U.S. dollar, which lowers the value of international revenue.
Regardless, Meta is a solid, highly profitable company with big future plans, albeit they are costing a lot of money. The company’s “Reality Labs” business segment is burning cash – almost $3 billion quarterly at last count. The investment is forecast to have a massive payoff long-term but pivoting revenue to the metaverse won’t happen overnight.
In the interim, Meta is generating plenty of cash and has a ton of money on its balance sheet. Sure, the growth of social apps, Facebook and Instagram, have slowed, but this leading social media company still has billions of engaged users worldwide. It currently has more than enough financial firepower to invest in the metaverse and still report attractive profits.
Expect More Volatility Ahead
Year to date, shares of META declined by nearly 47%. In June 2022, the stock hit a 52-week low of $154.25, a price which hasn’t been seen since April 2020. While Meta has fallen victim to the recent tech sell-off, savvy investors are accumulating shares.
Although in Meta’s Q1 2022 report, revenue was still up 7% year over year, the company’s slower growth caused investors to panic earlier this year, and the stock has yet to recover. A major reason for this is the macroeconomic environment that has hurt advertising budgets. No advertising revenue platform is immune to recessions, not even Facebook.
And then there are Apple’s user privacy changes, which will introduce an anti-tracking feature in iOS apps. These changes are expected to cost Meta as much as $13 billion this year.
Why Meta is an Attractive Buy
The social media giant’s shares are relatively cheap. Based on the anticipated revenue growth of 17% in 2023, buying Meta stock at its current valuation looks like a bargain. When we ran the numbers, fair market value sat 51% higher at $265.14 per share.
Digital advertising is expected to soar into 2025, generating as much as $785 billion in revenue, compared to $491 billion in 2021. Meta is a leader in this space and will profit from this sector growth.
Plus, Meta is investing heavily in the metaverse. While there are many unknown variables, JPMorgan believes this industry could become a $1 trillion annual opportunity.
The bottom line is the short-term road is rocky for Meta but the long-term prospects are as rosy as ever.