Meta Platforms (NASDAQ:META) reported earnings last night. Meta shares were down 20% in extended trading as a result, putting the stock down a huge 67% since the start of the year.
Revenues came in at $27.71bn, which was 4.5% lower than last year. Earnings per share were 49% lower at $1.64.
So, should I look to add to my investment as the share price goes down? Or should I sell as the underlying business continues to struggle?
Earnings
Meta divides its operations into two segments – the Family of Apps and Reality Labs. The former includes Facebook, Instagram, and WhatsApp and the latter contains the metaverse projects.
Both reported disappointing results. The Family of Apps revenue was down by around 3.6% and profits were 28% lower than a year ago.
Reality Labs reported revenues that were around 49% lower. The segment’s losses also increased.
As a result, the losses at Reality Labs accounted for around 40% of the profit made through the Family of Apps segment. That’s the highest that ratio has ever been. It meant Meta’s overall operating margins went from 36% to 20%.
For the fourth quarter, the company forecast that it would bring in between $30bn and $32.5bn in revenue.
Should I buy Meta shares
Compared to a year ago, revenues at Meta are down a few percent, earnings per share are down 49%, but the stock is down a disproportionately large 66%. So should I buy the shares?
I think so. The results from the Family of Apps segment don’t highlight any significant weakness in the business and it could offset the losses from the metaverse business.
As I see it, the headwinds that the advertising business is facing are the result of the current economic climate, rather than the business itself. Digital advertising results have been weak across the board recently. Alphabet also reported underwhelming earnings this week, indicating that the issue isn’t just with Meta.
And the number of users on Meta’s platforms remains strong. The company reported higher daily and monthly users across all of its platforms, including Facebook.
I therefore think the Family of Apps segment will recover as the economic climate improves. I’d expect weaker earnings in difficult times, so I’m not worried about the latest results.
That leaves the metaverse ops, which I see as a bigger issue. Without a clear path to profitability, this is a significant risk.
Investing in Facebook
Overall, I think advertising profitability should recover to outweigh metaverse losses over time. As a result, I’m looking to buy the stock at these prices.
I started investing in Facebook at the end of last year. Back then, the stock was falling due to declining daily active users, but the company was producing solid financial results.
Today, the reverse is true. The number of users on Meta’s platforms seems stable, but the company is making less money.
I see this as a temporary issue though. As the economy improves, I think that Meta Platforms will prove to be a great buy for me at today’s prices.
