It’s been a tough recent run for Meta Platforms Inc., offering plenty of fodder for the bears.
The Facebook parent company has seen its market value plunge to a recent $342 billion from upwards of $1 trillion last September, amid concerns about macroeconomic pressures on the ad industry, rising competition from TikTok, and changes made by Apple Inc.
that impact the company’s ability to target and measure ads.
The company is also in the midst of a controversial rebranding, having changed its corporate moniker to Meta
from Facebook last fall amid a bigger push into the “metaverse.” Accordingly, Chief Executive Mark Zuckerberg recently debuted a $1,500 virtual-reality headset and a greater vision for virtual workplace interactions.
The name change reflects Meta’s tough positioning, with the Facebook brand considered uncool in the U.S. and other markets. At the same time, there are doubts about the company’s metaverse opportunity and whether Meta is right to be pouring money into such efforts, especially in the current climate.
“Facebook, now Meta, finds itself at a crossroads,” Bernstein analyst Mark Shmulik wrote. “The bears are loud, the bulls are at their wits end worried about holding on to a falling knife, while deep value investors remain on the sidelines wondering if and when to step in.”
He described the criticism against Meta colorfully: “No one uses Facebook anymore! The next Yahoo! Lighting money on fire for a metaverse dream that will never happen!”
But he also sees reason for optimism, naming the stock his “top pick” in an “investment universe lacking high-conviction ideas.” In Shmulik’s view, given the steep decline in Meta shares, the company doesn’t even need to live up to the bull case to see stock momentum.
“Today, we just need the company to get back on track,” he wrote, and the company has an opportunity to start making a better case for itself when it reports earnings Oct. 26.
Shmulik says some of the Meta bear arguments might be overexaggerated. “The idea that no one uses Facebook anymore is likely coming from the same personal bias of where we spend our own time,” he wrote. Facebook continues to add a “staggering” volume of new users, and its app was the second most downloaded on a global basis in the third quarter, behind just Instagram, another Meta property.
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Admittedly, the new international users aren’t as lucrative for Meta as other cohorts, Shmulik said, and investors will probably be more focused on domestic trends. If Meta can show “that engagement here remains steady,” that could help “quiet” on component of the bear argument for a little.
He acknowledged that while Meta is spending heavily on the metaverse, the company also seems to be taking a more realistic approach to costs in the current environment. Amid hiring freezes and reports saying the company plans to finish out next year with a lower employee headcount than it has this year, Shmulik sees signs that Meta “still intends to invest in areas it deems a priority” but isn’t “disconnected with the health of the core business.”
He further noted that while Meta can’t control Apple’s privacy changes, the company is working to improve its ad fortunes in its own way, including by ramping the ad load on Reels and coming up with new inventory.