Is The Worst Behind For This Halved ‘MANG’ Stock?

Estimated read time 8 min read


Meta stock has crashed more than 50% from last year’s trillion-dollar peak amid worry that the sun has set on Facebook’s dominance of social media — for both users and advertisers alike. While Q1 earnings on April 27 seemed to rule out the worst-case scenario for Meta Platforms (META) despite a revenue miss, the relief rally quickly faltered.




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So what is the outlook now for the former FANG stalwart? Numerous Wall Street analysts still have 300+ price targets for Meta stock, which officially changed its ticker to META from FB as of June 9. Yet the list of concerns plaguing the stock seems to be growing, not shrinking, with the rising risk of a recession potentially compounding or extending the current slowdown in e-commerce spending.

That comes on top of even deeper problems. Intensifying competition from TikTok is hitting Meta’s profits as it fights to gain ground in short-form videos. Apple’s privacy change, by making it harder to effectively target online ads, has cut into ad pricing and jolted Meta’s entrenched position. And the threat of regulation and antitrust litigation could further erode Meta’s strengths.

With so much uncertainty, investors should monitor Meta stock’s chart for a sign that the company has really turned the corner.

Meta Earnings Update

Probably the best news for Meta is that users aren’t deserting Facebook. “More people use our services today than ever before,” CEO Mark Zuckerberg said in the April 27 earnings statement. Daily active Facebook users rose to 1.96 billion from 1.929 billion in Q4. With users in the U.S. and Europe essentially moving sideways, the growth came from the Asia-Pacific and other regions. One caveat: The loss of users in Russia, after it blocked Facebook, won’t be fully accounted for until Q2.

On Feb. 2, Meta issued first-quarter guidance that called for revenue in the range of $27 billion-$29 billion. With analysts expecting $30.2 billion in Q1 sales, that warning precipitated an epic sell-off that has now cost Meta about $500 billion in market value.

Analysts pared their estimate to $28.2 billion, but Facebook came in shy at $27.91 billion. However, adjusted EPS topped estimates by 16 cents, despite falling 18% from a year ago.

Meta said that it delivered 15% more advertising impressions than in the first quarter of 2021, but the average price per ad decreased by 8% from a year ago. Q2 revenue will range from $28-$30 billion, Meta said, with the high point below expectations of about $30.6 billion.

Some of that weakness reflects Apple’s privacy change, which has hurt advertisers’ return on ad spending. That means they’re not willing to spend as much per ad on Facebook. Macroeconomic issues likely also dampened ad spending, with higher interest rates and supply shortages both negative factors. Meanwhile, Russia’s invasion of Ukraine cratered those economies and sent energy prices surging, especially in Europe.

The earnings beat reflected lower expenses. Meta scaled back total-year expenses to a range of $87-$92 billion from the prior outlook of $90-$95 billion.

In Q1, Meta’s Reality Labs division, focused on growing the metaverse via augmented- and virtual-reality headsets and software, lost $2.96 billion in the quarter on revenue of $695 million.

Meta’s Family of Apps — including Facebook, Instagram, WhatsApp and more — had operating income of $11.48 billion on revenue of $27.21 billion.

Facebook’s TikTok Problem

On top of Apple’s privacy change that has made online ads less effective, Meta’s Q4 earnings announcement raised additional concerns that could weigh on growth. The biggest: “We believe competitive services are negatively impacting growth, particularly with younger audiences,” CFO Dave Wehner said in Wednesday’s Q4 earnings call. TikTok was the only competitor mentioned by name.

Trying to combat the TikTok threat and up its game with young adults has created another headwind to Meta’s earnings power. Meta is now focused on driving user engagement via its Reels short-form video feature, yet there are “relatively few ads in Reels today,” Wehner said on Feb. 2.

While Meta expects that Reels will prove fertile ground for monetization, that will take time. Meanwhile, Reels growth will weigh on overall results, since Meta algorithms will preference the short-form videos, meaning less growth for more ad-heavy News Feed and Stories formats.

In February, Meta announced the release of two ad formats for Reels that are semitransparent so as not to interfere with the video content. Meta is offering revenue sharing to Reels creators to place the ads. Morgan Stanley’s Brian Nowak figures creators will get 55% of the revenue for ads they place.

On April 26, Google parent Alphabet (GOOGL) missed on Q1 results as TikTok took a toll on YouTube revenue. Earlier in April, Snapchat parent Snap (SNAP) also missed views. Subsequently, on May 23, Snap warned that Q2 revenue growth would miss guidance.

Apple Costs Meta $10 Billion

Facebook has been warning since late 2020 about the challenge created by Apple’s privacy change. But the shift that began with the iOS 14.5 update last spring had a modest impact until Q4. Apple now requires apps downloaded through the App Store to let users opt in or out of tracking their activity across third-party sites. With the bulk of users opting out, businesses are less able to narrowly target advertising to consumers likely to be interested in their products or services.

“We believe the impact of iOS overall as a headwind on our business in 2022 is on the order of $10 billion,” Wehner said on Feb. 2.

The brunt of the hit to year-over-year growth is likely to be felt in the first half of 2022, since the impact of the iOS change wasn’t really felt until the second half of 2021.

Meta is working on changes to make its ad-targeting more effective, despite the impact of privacy-related changes. However, using artificial intelligence to predict consumer interest as a substitute for tracking user activity isn’t a quick fix.


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Meta Stock Analysis

Meta stock has plunged yet again from its falling 50-day moving average. The stock has yet to break a downtrend of lower highs and lower lows. That’s reason enough to stay clear of it. Meta stock has lost more than half its value from its all-time high of 384.33 on Sept. 1.

Meta Platforms, still known to many as Facebook, despite the Oct. 28 name change, was a market leader through last August. However, Meta shares fell through their 50-day line on Sept. 20, offering a sell signal. That was two days ahead of the company’s Sept. 22 blog post warning of a “greater impact” from Apple’s recent iOS updates.

Facebook’s Metamorphosis

Facebook’s Oct. 28 name change to Meta Platforms made sense for multiple reasons. It’s probably no coincidence that it happened as Facebook was being treated as a political pariah, alleged to profit from pushing politically divisive content and harming vulnerable teens. The name change also may have been a bid to get distance from Facebook’s less-than-cool image among young people. “You won’t need a Facebook account to use our other services,” CEO Mark Zuckerberg said in introducing the Meta name.

But the Meta name also speaks to Zuckerberg’s broader ambitions to lead social networking into the “next frontier.”

That frontier will be three-dimensional, allowing for immersive experiences. “The defining quality of the metaverse will be a feeling of presence — like you are right there with another person or in another place,” he wrote.

“Our hope is that within the next decade, the metaverse will reach a billion people, host hundreds of billions of dollars of digital commerce, and support jobs for millions of creators and developers.”

One more key reason Zuckerberg wants to produce the hardware for that next frontier: He wants to help set the rules, rather than have the likes of Apple set standards. But Meta has slowed down spending on its reinvention amid slower growth. A more restrained pace of spending — and losses — related to Zuckerberg’s long-term vision was one of the reasons analysts cheered the Q1 earnings report.


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Meta Stock: Is It A Buy?

Meta management has compared its current transition to Reels monetization to earlier successful content transitions, like the shift to Stories and mobile. But this time is different. User growth has run out of steam amid growing competition, while privacy changes have undercut its display advertising dominance. At the same time, Meta is still spending a lot to position for metaverse potential that may not come to fruition for years. All that makes it harder to have faith in the strength of Meta’s rebound.

Bottom line: META stock is not a buy.

Be sure to read IBD’s after-the-close The Big Picture column each day to make sure growth investors have a green light.

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Please follow Jed Graham on Twitter @IBD_JGraham for coverage of financial markets and economic policy.

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