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Last year was not a great year for tech companies. Goal (NASDAQ:META) was one of the hardest hit, as its shares plunged a staggering 65%. Nonetheless, CEO Mark Zuckerberg is determined to lead a rebound this year, pledging “one year of efficiency”. Therefore, now could be the best time to buy Meta shares.
Despite losing more than $13.7 billion so far on his Reality Labs division, Zuckerberg is doubling down on Meta’s ambitions to become the market leader in virtual reality technology.
But to make sure it doesn’t plunge the company into unprofitability, the firm plans to lay off another 11,000 workers in the coming months, on top of the 10,000 it released last year. These moves are expected to boost Meta’s earnings per share, which is why the stock has performed so well.
More interestingly, the group is jumping on the AI bandwagon. It’s rolling out its own big language model in an attempt to compete with Google’s ChatGPT and Bart. The goal is for you to be able to generate text, draw images, and even create media that resembles human production.
Although critics have called the move a public relations stunt, I disagree. I think this could be extremely helpful in boosting revenue streams from apps like WhatsApp, which have struggled to generate meaningful returns over the years. And if successful, this could mean a huge upside for Meta stock.
facing reality
However, as exciting as these developments are, Meta still needs to spend its capital diligently. That’s because not many companies, if at all, have lost $13.7 billion. And if Zuck’s gamble pays off, he’ll have to make sure Meta’s top earner can offset Reality Labs’ hefty losses.
This is where the investment case for Meta stock starts to fail: user base saturation. The conglomerate gets most of its revenue from Facebook. It has undoubtedly been successful in monetizing the social media website for the past two decades. That being said, user growth has been faltering.
In terms of the overall Meta user base, daily and monthly active users have only grown a meager 25% in the last three years. While this is to be expected given the large size of the corporation, the stagnation in average revenue per user (ARPU) is also worrisome.
Fortunately for Meta, it has a growth engine in the form of Instagram to help prop up its stock. The platform is starting to find its place to generate significant income. Still, it faces headwinds and growing competition from TikTok, Break, pinterestand YouTube shorts.
However, the business still has a long way to go thanks to its strong financials. That being said, shareholders should keep an eye on the balance sheet, as Reality Labs’ bottomless spending has seen cash levels and free cash flow deteriorate.
So is it worth buying Meta shares? Well, their valuation multiples are back up from their low point. Even so, the likes of citi, Goldman Sachs, Germanand many more remain bullish on the stock, reiterating their ‘buy’ ratings.
| Metrics | Goal | industrial average |
|---|---|---|
| Price-to-sales ratio (P/B) | 4.4 | 5.3 |
| Price-Earnings Ratio (P/E) | 22.1 | 24.3 |
| Forward price-earnings (FP/E) ratio | 20.4 | 32.5 |
However, it is worth noting that the stock only has a $209 average price target. This presents roughly a mere 4% upside over current levels. Therefore, I am not too interested in investing in Meta stocks.
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