Meta Platforms (NASDAQ:FB), formerly known as Facebook, has suffered significant losses in the 2022 tech selloff. The company has lost over $500 billion since its rebranding. FB even set a record for the largest one-day value drop in stock market history, and it hasn’t really recovered.
Meta is still a massive company, and its main platform — Facebook — is the most-used social media platform in the world. Moreover, Meta’s ambitious plans to dominate the Metaverse and change how people might connect in the future still haven’t changed. FB looks undervalued, considering its outreach. However, I still believe that the company is not out of trouble, and now might not be the best time to invest in the stock.
Since the large selloff in February, Meta has failed to offer any significant resistance, and the stock has continued to dip lower and lower. Since its all-time high, FB has lost close to 50% of its market capitalization, which is no laughing matter for a company of this size.
Meta has swallowed the crash; however, that doesn’t mean a recovery is imminent.
Facebook Itself Seems to Be Slowing Down
Most importantly, Facebook (the app) does not seem to be in a good position. The social media platform has seen a decline of its daily active users for the first time in its entire history. Facebook lost roughly half a million active users in the span of a few months. It is a drop in a bucket considering its total daily active user count of more than 1.9 billion, but it paints a picture of what might come in the future if current trends continue.
Until that point, Facebook had seen never-ending growth in its daily active users. But now that growth has not only come to a halt but has started to decline. Social media platforms such as Facebook rely mostly on advertisements for their revenue. If the userbase shrinks, the revenue may follow suit. And so if the current trends continue, Meta might be in for a lot of trouble.
FB Stock Has to Fight Tough Competition
Zuckerberg himself has complained that Facebook faces an “unprecedented level of competition” as young users seem to be ditching Facebook, WhatsApp, and Instagram for competitors like TikTok and Telegram. The exodus of young users could seriously hurt Meta’s growth in the long term.
And even if Meta’s plan for the Metaverse does become successful, it could still be years before those losses are recouped.
The problems Meta faces are not simple. Thus, I believe investing in FB stock is still a risky move no matter how much the stock might have declined.
The primary reason behind Meta’s decline is that the company is no longer based on solid footing. Investing in Meta has turned into a somewhat speculative investment as it mostly relies upon the Metaverse being a reality someday.
The Metaverse itself has to fight through many problems such as “disappointingly slow” adoption, as the vast majority of people don’t even have an idea of what it is. Moreover, virtual reality headsets aren’t something everyone can access as easily as they can their phone.
Meta also faces privacy concerns, and it is not seen favorably by many people. If Meta wants to turn the Metaverse into a big part of people’s lives, it will seriously have to improve its reputation on privacy.
Why You Should Wait Instead for FB Stock
Meta has serious issues to tackle. They might not be impossible to solve, but a lot of people believe it is a little too ambitious for Meta to pursue a billion users living in a VR world in less than a decade, especially for a company that is not fully trusted in terms of privacy.
My point is that Meta has too much on its hands right now. All of its problems make FB a risky stock to buy, especially in a time of extreme uncertainty about the future of the world’s economy. After all, it is not unusual in a capitalist free market economy to have periods of boom and recession. If we are approaching the latter, FB will not escape the pain. The Metaverse is still more or less a business idea. Business ideas can fail or succeed — there is nothing that guarantees the success of the Metaverse.
I believe that it is not the right time to invest in FB — or perhaps any tech stock facing a decline. Your primary goal as an investor is to make as much profit as possible with the least risk. In that sense, it is simply more profitable to wait with a yearly loss of 7.5% due to inflation than risk losing much more to a stock market that could be heading into a recession.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
