Meta Platforms (NASDAQ: FB) – formerly known as Facebook – is a stock that tends to divide opinion. Some see it as a mega-cap tech stock with bags of future potential. Others however, see it as a company with an uncertain outlook.
Is the stock a good fit for my own portfolio in 2022? Let’s take a look.
Three reasons to buy Meta shares in 2022
There are certainly things to like about Meta from an investment perspective, in my opinion. For a start, the company is a digital advertising powerhouse.
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Today, Facebook has over 10m advertisers on its platform. That’s huge. As a result of the large number of businesses advertising on its platform, the company is able to generate enormous cash flows. In 2021, for example, cash flows from operations amounted to $57.7bn. In the years ahead, the digital advertising industry is likely to get much bigger.
Meanwhile, Meta could be a leader in the metaverse in the future. While it’s hard to know exactly what the metaverse is going to look like, a lot of people believe that it’s set to be the next big technology platform. So it probably shouldn’t be ignored. Meta has big plans for its own metaverse and is currently spending about $10bn a year to build its platform.
Additionally, the stock looks pretty cheap right now. At present, Wall Street analysts expect the group to generate earnings per share of $12.3 this year. That puts Meta on a forward-looking P/E ratio of 16.6, which is not high.
Risks to the share price
Having said all that, I do have some concerns about Meta stock. One is that growth appears to be slowing. In Q4 of 2021, Facebook actually lost users.
As for why users are dropping off, I put it down to the fact that many people have lost interest in the platform due to the fact it has changed so much over the years. Originally, Facebook was all about social connections. Today however, users generally get bombarded with ads. By contrast, Google (the other big player in digital advertising) pretty much offers exactly the same product as it did a decade ago – a great search engine.
Another concern is that there are some ethical issues here. Recently, Facebook has been accused of prioritising profits over public health and safety. Meanwhile, some people believe that the platform is not good for mental health (some have even called it the ‘tobacco industry of the 21st century’). Given these issues, we could see regulatory intervention at some point in the future.
Finally, there’s no guarantee Meta will actually be a winner in the metaverse space. Other companies that could be dominant include Microsoft, Roblox, and Nvidia. The fact that Meta is burning $10bn a year on the project, with no guarantee of success, adds some risk.
Should I buy Meta Platforms stock today?
Weighing all of this up, I’m happy to leave Meta Platforms on my watchlist for now. There are things to like about the stock at present. However, all things considered, I think there are better US growth stocks to buy today.
