Meta Platforms Stock Is Down 57% YTD, Is It Attractive At Current Levels?

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Meta Platforms’ inventory (NASDAQ
NDAQ
: META) has lost 57% YTD, while the S&P500 is down 19% over the same period. Technology sector stocks have corrected more than broader markets this year due to macroeconomic headwinds – the NASDAQ 100 technology sector index fell 35% YTD. Furthermore, META faces problems like Apple’s
AAPL
privacy update for iOS (users can disable data tracking), high spending on metaverse projects, and antitrust regulatory scrutiny. This has made investor sentiment somewhat cautious for the stock.

The stock is currently trading at around $146 per share, which is 42% below its fair value of $252 – Trefis’ estimate for Rating of Meta Platforms. It posted weak results in the second quarter of 2022, with sales suffering from a decline in ad revenue. Two factors were behind this: first, strong sales growth in the same period last year; secondly, a reduction in corporate advertising budgets due to a difficult macroeconomic scenario. That being said, META’s daily active people grew 4% yoy in June 2022 to 2.88 billion, representing its strong user base. This in turn bolsters its position as a formidable advertising platform. Furthermore, the company is exploring new paid features for its family of social media apps to increase its sales.

Going forward, ad revenue is likely to remain under pressure in the following quarters. However, we expect it to recover with an improvement in the economy. General, The revenue of Meta Platforms are estimated at $122.8 billion (up 4% yoy) in FY2022 and $129.1 billion in FY2023 (up 5% yoy). In addition, META’s current year adjusted net income is likely to remain around $34.5 billion. This combined with annual earnings per share of $12.77 and a P/E multiple of just under 20x will lead to a valuation of $252.

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