Shares of Meta Platforms (NASDAQ:META) have plunged more than 60% this year, but there are still those who remain bullish on its long-term prospects. Of course, the bulls directly oppose the bears, who viewed the steady decline as the result of shallow ambitions and misplaced priorities. With Apple’s (NASDAQ:AAPL) ongoing privacy changes, TikTok’s hold in certain regions, and Meta’s massive metaverse investment, things aren’t looking upward for the firm. Therefore, we are bearish on META stock for the long haul.
However, Meta’s future success will hinge upon its ability to optimize the user experience through fresh and innovative applications that play upon the ever-growing presence of media-centric platforms. At this time, though, it remains a highly divisive stock that will likely shed more value for the foreseeable future. Therefore, it’s best to steer clear of META stock until the markets improve substantially.
Regulatory Challenges Ahead for Meta
The past couple of months have been disastrous for Meta due to several hefty fines issued for failing to comply with data regulations. This includes a €265 million fine from Ireland for Facebook’s data-scraping activities in 2018-2019 and a similar fine for WhatsApp’s privacy practices. Meanwhile, the Federal Trade Commission is still trying to take on Meta in court regarding antitrust and privacy issues.
Despite being victorious in its dispute with TikTok, the FTC is back to throw a monkey wrench into its plans by filing another lawsuit against the firm. This time, the FTC has raised objections over its attempt to acquire Within Unlimited, the maker of a virtual reality workout app called Supernatural, over monopolistic fears in the digital fitness market.
Furthermore, the Journalism Competition and Preservation Bill in the U.S. could be a huge setback for Meta, as it might have to part with a large cut of its advertising revenue if Congress passes the bill. In response, Meta could remove all news content from its U.S. platform, but this saga is strikingly similar to what unfolded in Australia not too long ago. Nevertheless, Meta negotiated a deal with the Australian government to avoid further conflict and potential losses.
The Metaverse Project Remains a Question Mark
Although Mark Zuckerberg saw the potential of the metaverse project, it’s now clearly paying the price. Its Reality Labs segment loses a ton of money each year, with a total loss of over $9 billion this year alone.
It had set out a goal of 500,000 monthly active users (MUAs) for its main metaverse product, Horizon World, by the end of 2022. However, growth was so slow that the tech giant had to reduce its target to 280,000. As of October, MUAs were less than 200,000. It certainly looks like a high-risk bet, as the stakes are much higher, and any failure would have larger consequences.
Furthermore, after a long streak of success since going public in 2012, Meta recently suffered an unexpected blow in Q3. It reported a 4% year-over-year decline in sales and an alarming 46% drop in operating income. All signs point to more pain ahead for the company and its stock.
Is META Stock a Buy?
Turning to Wall Street, META stock maintains a Moderate Buy consensus rating. Out of 38 total analyst ratings, 27 Buys, eight Holds, and three Sells were assigned over the past three months. The average META price target is $148.12, implying 25.46% upside potential. Analyst price targets range from a low of $80 per share to a high of $260 per share.
META Stock Looks Tempting but is Still Too Risky
While Meta Platforms may look tempting right now due to its low valuation, there is just too much risk in the stock. Even though its advertising revenue has the potential to increase if the economy improves in the upcoming year, Meta would need to grow its revenue more quickly than its expenses. However, it continues to invest heavily in its metaverse project, which is far from becoming what the company had intended. As a result, we remain bearish on the stock.
