Meta Platforms’ stock (NASDAQ: META) has lost 57% YTD, while the S&P500 is down 19% over the same period. The technology sector stocks have corrected more than the broader markets this year due to macroeconomic headwinds – the NASDAQ 100 technology sector index decreased 35% YTD. Further, META is facing issues like Apple’s privacy update for iOS (users can disable data tracking), high spending on metaverse projects, and scrutiny from antitrust regulators. This has turned the investor sentiment somewhat cautious for the stock.
The stock is currently trading around $146 per share, which is 42% below its fair value of $252 – Trefis’ estimate for Meta Platforms’ valuation. It posted weak results in the second quarter of 2022, with the top-line suffering due to a drop in advertising revenues. There were two factors behind this – firstly, strong revenue growth in the year-ago period; secondly, a cut in advertising budgets by businesses due to a tough macroeconomic scenario. That said, META’s daily active people (DAP) increased 4% y-o-y during June 2022 to 2.88 billion, which represents its strong user base. This, in turn, strengthens its position as a formidable advertising platform. Further, the company is exploring new paid features for its family of social media apps to boost its top line.
Moving forward, the advertising revenues are likely to remain under pressure over the subsequent quarters. However, we expect it to recover with improvement in the economy. Overall, Meta Platforms’ revenues are estimated to touch $122.8 billion (up 4% y-o-y) in FY2022 and $129.1 billion in FY2023 (up 5% y-o-y). Additionally, META’s adjusted net income is likely to remain around $34.5 billion in the current year. This coupled with an annual EPS of $12.77 and a P/E multiple of just below 20x will lead to the valuation of $252.
|S&P 500 Return||-2%||-19%||73%|
|Trefis Multi-Strategy Portfolio||-3%||-18%||225%|
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 Month-to-date and year-to-date as of 9/19/2022
 Cumulative total returns since the end of 2016