Despite Meta Platforms' stock price rising faster than the market in recent months, some critics remain skeptical as the company continues to invest heavily in developing its own metaverse (an immersive virtual environment).
Scrutiny Around Great News
Since its November low, the Facebook-Instagram owner's shares have increased 54%, making it the greatest performer in the Standard and Poor's (S&P) 500 Index, Bloomberg reported. The statement that the social networking corporation will be laying off over 11,000 employees was a significant factor in the increase in stock price.
But there are several indications that people are skeptical.
Despite the recent increase, meta is still one of the cheapest companies in the Nasdaq 100 Index, selling for less than half its average price-earnings ratio over the previous decade. Its stock price is 64% below its all-time high from 2021, and market watchers anticipate just a 7.7% increase in the next 12 months.
As far as the bulls are concerned, the issue is that Meta's costly investment in the metaverse is not going away and will account for a fifth of total expenses this year.
Furthermore, its once-profitable advertising business has stalled due to changes in Apple's privacy policies that have made it more difficult to target customers with ads on Apple's devices.
Louise Dudley, manager of Federated Hermes's global stocks portfolio, has speculated that the company's expenditures would remain quite high due to the metaverse.
Meta may need to provide investors with additional information, particularly its plan to combat competition from social media competitors like Tiktok before the surge can continue higher.
Investors will likely care considerably more about how much pressure Apple's new privacy policy continues to place on advertising income. Meta predicted in February 2022 that Apple's decision would cost the company $10 billion in annual sales.
Some investors in the metaverse are hoping that Facebook CEO Mark Zuckerberg will scale down his plans for the virtual world or abandon them altogether. A projected economic recession, reducing revenues at tech businesses, may force his decisions.
In a letter to investors this month, Terry Smith, manager of the $28 billion Fundsmith Equity Fund, cited Meta's expenditure as an example of the kind of company that would be forced to cut down on spending to maintain sales growth.
On Feb. 1, when Meta publishes profits for the fourth quarter, the company will be put to the test. According to Bloomberg statistics, during the last six months, analysts have reduced their average projections for adjusted profits per share by 27% and sales by 15%.
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Continued Optimism
Despite doubts, there is no shortage of bulls.
Meta's inexpensive values prompted JPMorgan Chase & Co.'s Doug Anmuth to raise Meta to overweight from neutral last month. Meta was anticipated to be 2023's top mega-cap internet company by 41% of JPMorgan investors.
Sylvia Jablonski, a chief investment officer of Defiance ETFs, said Meta seemed to have realized that refocusing on its ad business was preferable to betting everything on the metaverse.
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