Meta Platforms (META) is starting to show signs of stability after plunging from its high. Though there are serious issues weighing on its fundamentals, including Apple’s (AAPL) privacy-focused iOS updates, rising competitive pressure from TikTok, and a waning advertising landscape, there’s no denying the unprecedentedly low multiple. At less than 14x trailing earnings, the bar is set so low that even the most subtle hint of improvement in the Family of Apps business could spark a rebound.
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For this reason, I remain bullish on Meta stock.
Meta’s Weak Q2 Numbers Offered a Glimmer of Hope
Going into Meta’s latest Q2 earnings results, investors were expecting numbers bordering on catastrophic. Though revenues retreated (for the first time ever) while ad demand sagged, growth in the social-media business is a bright spot on an otherwise dark quarter. DAUs (Daily Active Users) rose 4% to just shy of 2.9 billion.
As we head into a recession, the ad market will continue to be meager. That said, as consumers tighten their wallets, we could see more users spending more time on “free” Facebook and Instagram over paid forms of entertainment where the users are the product. I noted this potential trend in a prior piece.
After a tough second quarter, I do think we’re starting to see Meta’s social-media business turn a corner. The stock is regaining ground from its post-earnings flop and may be ready to be constructive again.
There are no easy answers to Apple’s privacy changes or the waning ad market. Facebook won’t be able to chase as many users around the web, and it will have to live with that. Fortunately, Meta is hard at work on ways to improve its ad positioning relative to rivals.
Reels is Rolling Along
In any case, Meta’s Reels seems to be picking up a bit of traction. The Instagram and Facebook feature is a direct response to rival TikTok. The U.S. communications regulator is also hoping to ban TikTok. Such a ban may seem unlikely at this juncture.
That said, if tensions between the U.S. and China rise, we may very well see regulators get their way. I don’t think a potential TikTok ban is factored into Meta stock quite yet. Such a move would likely act as a boon to Reels usage, as Meta looks to improve upon monetization.
For now, many investors may view Reels as a blatant copy of TikTok’s offering. Other than acquiring potential threats, I’d argue that “copying and improving” social media features is Meta’s forté. Further, the increased usage of Reels within Instagram is hard to ignore, even if the feature does lack originality.
Meta Platforms: It’s the Economic Hailstorm That’s (Mostly) to Blame
It’s easy to point the finger at weakening macro conditions for rough quarters. Though Meta may have made a few operational hiccups along the way, I think it’s well-equipped for an abrupt recovery once the worst of the recession is baked into the share price.
After a nearly 60% haircut, it seems as though many expect Meta won’t be able to get back to its high-growth days and that we’ve reached peak social media.
I think today’s depressed multiples and the “peak social” thesis severely discounts the durability of Meta’s Family of Apps. Facebook and Instagram are staples that may have been dealt a blow by Apple, TikTok, and economic headwinds. That said, Meta’s social staples may be quick to bounce back once the bear dies and the bull takes its place.
Wall Street’s Take on META Stock
Turning to Wall Street, META stock comes in as a Moderate Buy. Out of 36 analyst ratings, there are 28 Buys, six Holds, and two Sells.
The average Meta Platforms price target is $226.26, implying an upside of 34.1%. Analyst price targets range from a low of $140.00 per share to a high of $466.00 per share.
Conclusion: Meta is Strong Despite Being Viewed Negatively
Meta Platforms is easily the least-trusted of the FAANG stocks. Some of the company’s past practices may be viewed in a negative light. Such reputational tarnish won’t be quick to wear off. In any case, Meta continues to have one of the most powerful app lineups in the social-media scene. Once the storm clouds move past, it may not be so far-fetched to think the stock can make a run for those prior highs.
Finally, Meta has a few wildcards up its sleeves. Metaverse initiatives and a potential TikTok ban could provide Meta with a growth jolt that may be difficult to factor into financial models.
