- Meta Platforms (FB), formerly Facebook, has not recovered from its December earnings release.
- The company continues to invest in its cloud and metaverse software.
- It’s dirt cheap but continuing to grow.
The value of Meta Platforms (NASDAQ:FB) stock has been cut nearly in half by the latest tech wreck.
But it will come back.
Meta’s growth has slowed but it has not stopped. First quarter revenue was $28 billion, almost $2 billion ahead of a year earlier. Profits were down, but that had been telegraphed months ago. Operating cash flow, meanwhile, surged to over $14 billion, against $12 billion a year earlier.
What is mainly happening to the stock is multiple compression. With a market cap of $562 billion, Meta is now selling for 15 times earnings, less if you throw in the $44 billion it has in cash and marketable securities.
What Went Wrong
Meta was one of the first stocks to plummet this year after disappointing earnings, announced in February.
Like the latest numbers, those numbers represented only a slowdown, not a loss. Meta earned $10.3 billion and $3.67 per share fully diluted for the three months ending in December. This was down from the previous year because Meta was investing in its “metaverse” software. Revenue was up by 20% at $33.7 billion.
The market reacted like Meta was going out of business. The stock dropped nearly $100/share overnight, and it’s down another $40/share since. If you need the money you invested in Meta when it was high, you’re out of luck.
Meta took it especially hard because few analysts believe in its metaverse. They see co-founder and CEO Mark Zuckerberg risking tens of billions of dollars on a chimera. They want Meta to share its profits with them in the form of dividends and stock buybacks. Those buybacks have fallen along with the stock, to $7.5 billion in the first quarter from $19 billion the previous quarter.
FB Stock Strengths
There are two reasons not to count Meta out.
The most important is its cloud. Its “fleet” of 21 data centers, 17 in the U.S., were all bought with cash flow. It doesn’t pay to deliver its services, the way rivals like Snap (NASDAQ:SNAP) and TikTok do.
If Meta wanted, it could easily monetize this cloud by letting other services use it. It has chosen not to do so. But it remains a “Cloud Czar,” just as Apple (NASDAQ:AAPL), which also doesn’t rent its capacity, remains a Cloud Czar. It controls the infrastructure that runs the world.
The second strength is the source of its revenue. You may hate Facebook, but billions of people in the developing world depend on the free services of Facebook, Instagram, and WhatsApp for connecting to world markets. Facebook may be in a fight over regulation with the U.S. and European governments, but it has accommodated itself to regulation in these other places and continues to grow.
In short, what Meta has are First World problems.
The Bottom Line on FB Stock
I don’t own Meta stock. I don’t trust Zuckerberg any further than I could throw him.
But Meta stock will rise at some point. It is still growing. Meta still owns its own infrastructure. It’s still inching forward with the metaverse, opening a retail store in Silicon Valley to sell its Reality Labs headsets. Analysts are appalled that Meta is prepared to lose $10 billion on Reality Labs this year, but it’s money Meta can afford to lose and still make a profit.
Bear markets are temporary. Tech wrecks are, too. The companies with the cash and infrastructure to survive them gain huge opportunities as competitors fail. If you’re looking out five years from now, you can buy Meta Platforms stock here and, most likely, you’ll make money.
Even if you believe Zuckerberg is a lunatic and the metaverse is ridiculous Facebook will go on.
On the date of publication, Dana Blankenhorn held long positions in AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.