These metrics sound like a dream come true for any value investor: products that billions of people touch every day. A return on equity of 19.8 per cent. A growth of 12.5% annually over the last five years. And all this at a price-earnings ratio (P/E) of 10.6 (as of November 23, 2022). We are talking about the Facebook parent company Meta (WKN: A1JWVX) and Meta stock.
Nevertheless, the meta stock is not in my portfolio. And I would choose many other stocks over the social media company.
That speaks against the Meta stock
The figures mentioned at the beginning of course paint a nice picture. But the truth is also true: in the last quarter, earnings per Meta share were halved compared to the previous year. Sales fell by 4.5 per cent. The number of users hardly grows. It shows that there are also operating problems at the Facebook parent company.
The biggest problem is that the company’s target market is simply saturated. Meta is up against dozens of other companies all vying for consumers’ screen time and attention. But the day has only 24 hours for all of us, and at some point the maximum of daily entertainment is exhausted.
Short video service TikTok has surpassed Meta over the past few years, stealing market share from many other streaming, social media and other entertainment platforms. For a long time, the large network effect of the products used Facebook, Whatsapp and Instagram as a moat of the meta share. TikTok has shown that this competitive advantage is worth a little.
At the same time, stricter data protection rules are pressing Appleunits and the general mistrust of the monetization meta for each user. So the Meta share comes under pressure on several fronts.
Escape to the virtual world
Optimists will say that the Metaverse is the future. Pessimists will say that the renaming of Facebook to Meta and the billions invested in the ominous project is a sign of desperation. And cynics will say that Mark Zuckerberg needs a retreat from the real world, where the meta stock price has lost a very real two-thirds over the past 52 weeks.
In general, I believe that long-term investors have little reason to complain when their companies invest in future growth drivers. But the extent of these investments in the Meta stock – especially in relation to the technological return – is very questionable. The loss of the responsible department “Reality Labs” grew in the first nine months of the current year by 37% to over 9.4 billion US dollars. From the outside, it doesn’t look like a very focused and efficient investment.
It is the combination of a mature and fluttering core business with an untargeted, almost desperate-looking investment policy that makes Meta stock unattractive to me. Am I wrong in the long run? Who knows. But from today’s perspective, there are far more exciting opportunities on the stock market.
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Christoph Gössel owns none of the shares mentioned. The Motley Fool owns shares of and recommends Apple and Meta Platforms, Inc. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple.