Company / Analytics

Analytics, 30 July 2022

Is the Meta stock a good investment today?

Meta has been on the news in the last few days for one thing; its first-ever yearly decline in revenue. For the second quarter, Facebook and Instagram’s parent company, Meta, posted a 1% year-on-year decline in revenue. This was the first decline ever, reporting $28.8 billion for the quarter versus $29.08 billion for the same period last year. Profits for the quarter were reported as $6.7 billion, a 36% fall.

Shares for the company have also tanked heavily, reporting almost a 50% loss for 2022 so far. Meta also issued a disappointing third-quarter forecast, citing the continuation of the weak advertising demand environment they experienced throughout the second quarter, which Meta believe is being driven by broader macroeconomic uncertainty.

A major culprit for this decline is an issue also affecting Google’s parent company Alphabet; a decline in advertising revenue. With continued competition from TikTok, and the effects of Apple’s toughened stance on protecting the privacy of iPhone users, Meta is evidently suffering the effects of a softer advertising environment.

What is responsible for Meta’s bad run?

Apple’s changes in their privacy policies

In late 2020, Apple reviewed its privacy policies, allowing its users to opt in or out of tracking their activities across third-party apps. This move did not have much impact until late 2021, with the iOS 14.5 update. A bulk of users opted out of the tracking, costing Meta the data needed to help businesses narrowly target advertising to consumers likely to have an interest in their products or services.

Facebook, in a comment by their CFO David Wehner earlier this year, estimated an overall decline in revenue in the order of $10 billion, thanks to Apple’s move. Meta plans to solve this issue by using Artificial intelligence to predict consumer interest as a substitute for tracking user activity. The company also plans to expand its e-commerce activities within Facebook, Instagram, and WhatsApp and use data collected to better understand user interests.

Analysts however expect Meta, through the company’s vast resources and expertise, to recover from Apple’s hit over time in terms of ad targeting.

Rising competition

In Meta’s Q4 earnings announcement for 2021, the company raised concerns about the rising competition that could possibly weigh in on growth. “We believe competitive services are negatively impacting growth, particularly with younger audiences,” Wehner commented during the earning’s call.

The company only mentioned one competitor; TikTok.

However, in the recently released earnings report, it is noted that there aren’t deserters for the company’s primary app, Facebook. Daily active Facebook users rose to 1.968 billion in Q2 from 1.96 billion in Q1. In the U.S., the daily active users rose to 197 million from 196 million.

On the other hand, a report released by Morgan Stanley analysts notes a drop in time spent on Facebook by a staggering 3%. The drop is not as bad for the collective family of Meta apps, reporting a 1% drop. This is credited to the slight growth of time spent on Instagram.

Facebook’s counter move against its competition was the introduction of Reels, a short-form video feature for Instagram. So far, it seems to be working as the company announced in their Q2 earnings call that revenue from reels had reached the $1 billion annual run rate. This is however a much lower monetization rate as compared to other of the company’s features like Facebook stories, signifying room for much further growth.

How has Meta stock faired?

On Thursday, July 28th, Meta stock fell 5.2% to 160.72 per share. This was in the wake of the company’s Wednesday earnings announcement. This is fairly reserved compared to a 26% crash in the wake of its Q4 earnings report on Feb 3rd.

Year-to-Date, the stock is down about 50%. The stock has been on a general downtrend since hitting its all-time high of 384.33 per share on September 1st, 2021.

Should you consider investing in Meta today?

Like most tech stocks, Meta has been affected by the broader macroeconomic uncertainties. The company has recently slowed down hiring as recession fears continue to rumble market movements. The biggest threat to the Meta stock still remains to be the broader harsh environment for tech stocks.

In the long term, most analysts are bullish on the Meta stock but remain adamant about investing in the short term. The company boasts of vast resources and manpower and is expected to sort out the issues unique to them.

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