Shares in Facebook owner Meta Platforms (NASDAQ: FB) have seen a big pullback recently. Last week, the stock fell more than 25% after the company posted its Q4 earnings.
In the past, large pullbacks in the Big Tech space have been fantastic buying opportunities. So, is now the time for me to snap up Meta stock? Let’s take a look.
Why Meta’s share price crashed last week
Looking at Meta’s Q4 results, the company clearly has some challenges right now.
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For starters, Facebook is losing users. For the fourth quarter of 2021, the social media platform had 1.929 billion daily active users compared to 1.93 billion in the previous quarter. This was the first time it has lost users in its 18-year history. One reason user numbers have stalled is that a lot of people have switched to TikTok. The problem here is that, unlike some of the other Big Tech companies, Facebook doesn’t have users ‘locked in’ to its platform. It’s easy to switch from one social media platform to another.
Secondly, the company is struggling to deal with Apple’s recent privacy changes. This has had an impact on its ability to offer targeted advertising. The group said that this would cost it about $10bn in advertising revenue this year.
Third, Meta is losing a ton of money on the metaverse. On the company’s earnings call, CEO Mark Zuckerberg said that its metaverse buildout lost $10.2bn in 2021.
Finally, revenue growth is slowing. For Q4, revenue growth was 20%, which isn’t too bad. However, for Q1 2022, Meta said it expects top-line growth of just 3-11%. That’s low. The consensus forecast here was 15%.
Should I buy Meta stock now?
Given the challenges that the company is facing at the moment, I’m not convinced that it’s a good time to buy Meta shares for my portfolio.
There are certainly some reasons to like the stock. For example, after the recent share price fall, its price-to-earnings (P/E) ratio is now under 20. That’s a low valuation for a Big Tech stock. Meanwhile, the company is still generating cash hand over fist. Last year, it generated operating cash flow of $58bn.
However, the drop off in growth is concerning, in my view. It seems that Facebook’s popularity may have peaked.
It’s worth noting that, unlike the other Big Tech companies, Meta doesn’t have multiple revenue streams. Microsoft can generate revenue from business software, cloud computing, and gaming, Meanwhile, Alphabet can generate revenue from advertising and cloud. However, Meta only has advertising. So, it’s a bit of a ‘one-trick pony’.
Additionally, there are ethical issues here. Last year, a former Facebook employee accused the social media company of prioritising profits over public health and safety. These issues seem to have been forgotten about recently as a result of the company’s shift towards the metaverse. They’re still there though. And I think we could see some regulatory intervention down the line as a result of these issues. This adds risk to the investment case.
Of course, Meta has plans to be a major player in the metaverse. This could boost growth in the future. However, realistically, this is still a long way off. And the metaverse is going to cost the group a lot of money in the near term.
For now, I think there are better stocks for me to buy.
