Meta Platforms’ stock (NASDAQ: META) has lost 71% YTD as compared to the 20% drop in S&P500. Further, the stock is currently trading around $96 per share, which is 44% below its fair value of $174 – Trefis’ estimate for Meta Platforms’ valuation. The social media giant posted lower-than-expected earnings in the third quarter of 2022. It reported a decrease of 4% y-o-y in net revenues to $27.7 billion – two consecutive quarters of negative growth. Moreover, the company is expecting to see negative year-on-year growth in the fourth quarter, too. Notably, it issued revenue guidance of $30-$32.5 billion for Q4. This has made investors nervous about the stock.
Although high-growth technology stocks have suffered this year., META stock is also struggling with additional issues. One of the reasons for investor concern is the very high spending on reality labs (Metaverse). The company has spent more than $9 billion YTD and the trend is likely to continue over the subsequent quarters. Further, a drop in advertising revenues over the last six months has made the matters worse. On the flip side, the firm has a strong user base. Its family daily active people (DAP) was 2.93 billion in Q3 (up 4% y-o-y), followed by a Facebook daily active user base of 1.98 billion (up 3%).
The drop in advertising revenues was primarily due to macroeconomic conditions. It is expected to improve with the recovery in the economy. Further, the firm is investing in reality labs from a long-term perspective and the segment is unlikely to turn profitable in a year or two. Overall, we estimate Meta Platforms’ revenues to be around $116.4 billion in FY2022. Additionally, the adjusted net income is likely to reduce to $23.9 billion in the year (down 39%). This coupled with an annual EPS of $9.20 and a P/E multiple of just below 19x will lead to a valuation of $174.
|S&P 500 Return||-1%||-20%||71%|
|Trefis Multi-Strategy Portfolio||-3%||-24%||200%|
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 Month-to-date and year-to-date as of 11/9/2022
 Cumulative total returns since the end of 2016