(Bloomberg) — In most market environments, a company with one of the lowest valuations in the Nasdaq 100 Index, a solid balance sheet and sales growth averaging 34% a year would be an obvious buy. In the case of Meta Platforms Inc., it’s not so obvious.
Since Mark Zuckerberg’s announcement a year ago of a name change and strategy overhaul for the owner of Facebook, the stock has wiped out more than half the gain it had seen since its initial public offering a decade ago. That’s cost Meta $600 billion in market value and a spot in the elite club of the US’s 10 biggest companies.
Analysts predict Meta’s revenue will drop this year for the first time ever, as competition and cooling economies, among other factors, cut into ad sales. User growth at its flagship product, Facebook, has slowed as a younger generation flocks to newer sites like TikTok. Meanwhile, the company is spending billions to realize Zuckerberg’s vision of the metaverse, that still-to-be-realized virtual world where people will work, shop and socialize.
“There’s so many red flags relative to Meta,” said Matthew Kanterman, director of research at Ball Metaverse Research Partners.
Which brings us back to the case for Meta being an obvious buy. So-called value investors, who love stocks that are widely out of favor, already started to build positions in the company this year. They may find it even more attractive now that it’s priced at only 10 times forward earnings, down from an average of 28 over the past decade and cheaper than old-school, dotcom-era tech favorites such as Intel Corp. and Cisco Systems Inc.
Analysts predict that sales growth will resume in 2023 and rebound to double digits the year after that. The Menlo Park, California-based company is focused on a capitalizing on Instagram Reels, its rival to the TikTok video-sharing app.
And Zuckerberg last month said the company will freeze hiring and restructure some teams to trim expenses and realign priorities, an acknowledgment that its days as a growth darling are over.
“While macro challenges persist, we believe improved Reels monetization, newer ad formats, and a greater focus on expenses create a compelling risk/reward in shares,” Ronald Josey, an analyst at Citigroup Inc., wrote in a report last week. He sees the stock gaining 70% in the next year.
Still, Meta is one for the brave in a world where tech stocks face an uphill battle of rising interest rates. The stock has fallen 61% in 2022, almost double the decline of the Nasdaq 100, pushing its market value down to around $350 billion from more than $1 trillion at its peak last year.
Thursday’s roaring rebound aside, this has not been a good year for technology stocks, with the Nasdaq 100 ending at least 1% lower in about a third of the trading sessions. That puts the tech gauge on track for the most number of days with at least a 1% drop since 2002. The Nasdaq 100 rose 1% on Friday.
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