At first glance, the narrative for Meta Platforms (NASDAQ:META) appears overwhelmingly negative. Just from a brief peek at its price chart, investors recognize that META stock hemorrhaged more than half of its market value. With even CEO Mark Zuckerberg sounding the alarm about broader economic conditions, the once-hot social media network and technology platform seems like a sell. However, bold contrarians may have a long-term opportunity here. I am cautiously bullish on META.
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As mentioned above, market participants with a dim view of META stock have plenty of reasons for their pessimism. Broadly speaking, soaring inflation devastated consumer sentiment in the first half of this year, which saw the dollar’s purchasing power diminish by 5.3%. Now, with the Federal Reserve making good on its earlier promises to attack inflation through higher interest rates, the economy faces deflationary pressures in the second half.
Either way, it’s been a rough ride for META stock. In late July, investors got a glimpse of how badly the new normal impacted Meta Platforms, which owns the Facebook social media network along with the photo-sharing app Instagram. Per TipRanks reporter Swati Goyal, Meta delivered weaker-than-expected results for its second-quarter earnings report.
“Revenue in the quarter was down 1% to $28.82 billion from the year-ago quarter. According to the Wall Street Journal (WSJ), it is the first time that the company’s quarterly revenue has dropped compared to the year-ago quarter. The figure missed consensus estimates of $28.94 billion. Total costs and expenses came in at $20.46 billion, a 22% increase from the year-ago quarter.”
Even more problematic, Zuckerberg sounded the alarm about a possible incoming economic recession. Specifically, he called out anxieties over the digital advertising space, a matter that could hit META stock hard. “Businesses will cut back on their marketing spending. That means less advertising on Facebook and Instagram, which is a problem for Meta’s bottom line,” wrote TipRanks contributor Steve Anderson.
Still, contrarian investors that can handle some heat emanating from the kitchen might not want to give up just yet on META stock.
META Stock Remains All about Social Media
One of the peculiarities about META stock is that the underlying company is attempting to spark a fresh identity, similar to how late basketball legend Kobe Bryant made career highlights wearing jersey numbers “8” and “24.” However, in this case, Meta arguably should have stuck with its social media branding. It works and remains the most powerful catalyst for the entire organization.
TipRanks contributor Joey Frenette said it best. “Social media is still the primary reason to own shares of Meta Platforms. Facebook still seems like a more fitting name for the company, at least until metaverse initiatives can contribute to a larger slice of the Meta revenue pie.”
One could write volumes about the myriad influences of the Facebook platform. However, in a digitally connected world, owning a canvas with a wide demographic appeal is golden, and that’s exactly what’s under the hood with Meta Platforms.
While the Facebook network skews young – as do virtually all other social media platforms – it features a balanced profile among various age cohorts. On average, the 25 to 34 age bracket represents the meat of Facebook users. It’s also where many people are asserting themselves career-wise, making this category incredibly lucrative.
In addition, while other social networks feature almost no representation among the 40-plus crowd, Facebook appeals to almost everyone. For instance, 2.8% of female users and 2.5% of male users belong to the age 65 and older segment. Such vast appeal will very likely translate to higher revenue and income over the long run.
Facebook Enjoys Potentially Permanent Demand
As Goyal mentioned when covering Meta’s Q2 earnings results, much of the pessimism toward META stock stemmed from disappointing guidance. Management “expects Q3 2022 revenue to range between $26 billion and $28.5 billion. According to IBES data from Refinitiv, analysts were expecting revenue of $30.52 billion. The revenue guidance reflects a weak advertising environment driven by macroeconomic uncertainty.” Nevertheless, long-term investors shouldn’t fret too much as the Facebook brand potentially features permanent demand.
One key piece of evidence comes from the active user metrics. “Facebook daily active users (DAUs) stood at 1.97 billion on average for June 2022, a 3% increase from the year-ago period. On the other hand, Facebook’s monthly active users (MAUs) increased 1% from the year-ago period to 2.93 billion as of June 30, 2022,” wrote Goyal.
Put another way, even with all the troubles afflicting Facebook specifically and the economy broadly, people still gravitate toward the underlying network. This dynamic suggests that once companies decide to start their marketing initiatives back up, they’ll turn to the most effective platforms.
After all, if marketing becomes a priority, businesses might as well launch such projects on one of the biggest canvases possible.
Is Meta Stock a Buy?
Turning to Wall Street, META stock has a Moderate Buy rating based on 27 Buys, five Holds, and two Sells assigned in the past three months. The average META price target is $223.70, implying 62.9% upside potential.
Looking Well into the Future of META Stock
To be clear, the narrative for META stock presents many vulnerabilities. In the near term, anything can happen, so risk-averse investors may want to steer clear. However, those with an eye for long-term discounts should consider the Facebook parent. While the digital ad market weakened, Facebook remains the apex predator of a still-relevant industry.
