Meta Platforms Is Too Cheap to Keep Selling

  • Zuckerberg increased Meta Platforms (FB) stock capex this year
  • Meta is playing a defense game
  • Meta does not pay any dividends
Facebook (FB) logo held by hand backdropped by company-blue background
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Like the Russian rouble, Meta Platforms (NASDAQ:FB) stock got too cheap to keep selling. Speculators jumped on a tech stock that even now is selling for just 5.57 times sales, 17 times forward price to earnings and growing at over 35% per year. Shares bottomed at $186 mid-March and opened April 5 at $234. That’s a market capitalization of $637 billion on 2021 sales of $118 billion.

Meta Platforms still has over a dozen cloud data centers, linked by fiber cable. It still buys all its capital goods with cash. It still had $48 billion in cash and securities at the end of last year. It’s still virtually debt free.

The problem is no one believes in CEO and controlling shareholder Mark Zuckerberg anymore. The company’s main software assets remain tarnished. Investors like me will buy the future wonder if Meta has one.

FB Meta Platforms $234.32

Waiting for the Metaverse

Zuckerberg  became a centi-billionaire before age 40 by believing in his own vision. (He’s currently worth “just” $83.5 billion). Zuckerberg believed his social network could become a dominant ad medium, and he was right. Thousands of TV and cable executives were wrong. Zuckerberg believed cloud was the future of computing, and he was right. Former Wall Street darlings AT&T (NYSE:T) and International Business Machines (NYSE:IBM), among others, were wrong.

Now Zuckerberg believes the Internet is about to evolve from a visual medium to an immersive experience. He increased Meta’s capex from $19 billion to $29 billion-34 billion this year. Most of the extra money is going into artificial intelligence and virtual reality software.

The problem is that Meta was built on “killer apps” Facebook, Instagram and WhatsApp. There is not yet a killer app for the metaverse. If you’re buying Meta for the long-term it’s because you believe in Zuckerberg’s vision. Even the company’s employees are having a hard time believing in it  because it’s not generating profit.

Zuckerberg’s seeming inability to articulate where his company is going has critics comparing the Metaverse to Second Life, a 20-year old online community whose launch I witnessed. The problem is that the residents must create the platform from the bottom-up , as happened with Facebook. Meta’s top-down, centralized approach is being called all-wrong by experienced technologists.

I agree with them.

Playing Defense

Meanwhile, Meta is playing a defensive game to protect its remaining revenue streams.

It’s adapting to the Apple (NASDAQ:AAPL) privacy changes that drove ad market share to Alphabet (NASDAQ: GOOG, NASDAQ:GOOGL). It hopes a new agreement on data transfers between the U.S. and Europe will let it keep doing business as usual.

Meta is shelving plans for a Dutch data center while building in Spain. It’s also continuing to build data centers in the U.S..

While reporters and analysts dismiss Meta’s current offerings, billions of people depend on them. I have written before about how free, ad-supported services have brought people in India, Southeast Asia, Africa, and Latin America into the global conversation. These “cash cow” services continue to grow, despite what western critics think of them.

The Bottom Line

As Meta stock has fallen, analysts have drifted away. FB Stock is now only a “moderate buy” at Tripranks, despite its continuing financial success. Analysts expect the company to earn $12.38/share this year, against $13.77/share last year. Revenue is expected to be $132 billion. 

Meta pays no dividend, but it quietly accelerated stock buybacks as the shares fell. Without them the fall would have been much harder.

What troubles me is that Zuckerberg has never experienced failure. It was the failures of Steve Jobs, his exile to Next and Pixar in the late 1980s, that fueled his and Apple’s rise. Zuckerberg is now at the age Jobs was near his bottom, but he’s surrounded by yes-men.

If you believe in Zuckerberg’s vision of AI, VR, and an immersive computer reality, it’s not too late for you to get into Meta stock. I left it because I just don’t believe in that vision.

If I’m wrong, I’m missing the greatest bargain of the decade.

On the date of publication, Dana Blankenhorn held long positions in GOOGL and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.


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