Meta Platforms Not Yet in Favor Despite Low Valuations

Since Meta Platform’s (META) CEO Zuckerberg announced a name change and strategy overhaul for the company more than a year ago, the stock has wiped out more than half the gain it had seen since its initial public offering a decade ago. That knocked Meta Platforms out of the top ten biggest U.S. companies and cost the company $600 billion in market value.

Most analysts predict that Meta Platform’s revenue will drop for the first time ever this year. Weaker ad sales, a global economic slowdown, and sagging user growth in the company’s flagship Facebook platform is weighing on the company’s growth prospects.  Meanwhile, Meta Platforms is spending billions to realize CEO Zuckerberg’s vision of the metaverse, the still-to-be-realized virtual world where people will work, shop, and socialize.

Many value investors who buy into companies that fall out of favor may be enticed by the plunge in the valuation of Meta Platforms.  The company is now priced at 10 times forward earnings, down from an average of 28 times over the past decade, and cheaper than tech favorites such as Intel (INTC) and Cisco Systems (CSCO).

Meta Platforms hopes to reignite growth in the company by pushing forward with its Instagram Reels, its rival to the TikTok video-sharing app.  Also, CEO Zuckerberg announced last month that his company would freeze hiring and restructure some teams to trim expenses and realign priorities.  As a result, analysts predict that sales growth will resume in 2023 and rebound to double digits in 2024.

Citigroup is optimistic about Meta Platforms, predicting the stock could gain 70% in the next year. Citigroup said, “while macro challenges persist, we believe improved Reels monetization, newer ad formats, and a greater focus on expenses create a compelling risk/reward in shares.” However, in a landscape of rising interest rates, tech stocks face an uphill battle.  Meta Platforms has fallen 61% in 2022, almost double the decline of the Nasdaq 100 Stock Index ($IUXX) (QQQ), pushing its market value down to $350 billion from more than $1 trillion at its peak last year.

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