Meta Stock (NASDAQ:META)
Meta Platforms (NASDAQ:META), which used to be called Facebook, just finished what may have been its most challenging year since it began in 2004. It started the year by putting out a terrible earnings report that showed many problems with how the company does business. The report made many people want to sell their shares, so META’s market cap went down for the rest of the year. At the beginning of the year, the market value of the company was around $900 billion. Now, the market value is just over $300 billion.
Meta had to deal with a number of tough problems that, when put together, posed a big risk to the business as a whole:
- The macroeconomic environment seems to be getting worse all the time. This, along with rising inflation and interest rates, led to what many may see as a long-overdue market cooldown, with most stocks going down. The bad economy also led to the “weakest advertising market since 2020,” which hurt Meta in a big way.
- Meta’s social media empire has grown so big that it’s getting harder and harder for him to get new users.
- Many investors are unhappy with Zuckerberg’s recent shift to the “Metaverse” and the increased spending that has come with it.
On top of their other problems, the Chinese app TikTok, which seems to have users worldwide and topped the charts as the fastest-growing app, was threatening to take over the social media space. All of this bad news led to the worst year-to-date performance among “FAANG” stocks and one of the worst year-to-date performances among companies that run social media apps. Since the beginning of the year, the company has done worse than the S&P 500 for the first time in years. At the moment, one share of META is worth just over $130.06, which is less than last year’s high of $325.05.
Is TikTok About To Be Taken Away?
Just a few days ago, it came out that former House Speaker Nancy Pelosi, one of the most successful investors among politicians, backed a bipartisan bill that will probably stop the popular app from being used on the devices of public servants. It’s a surprising turn of events since the company has had trouble making friends in high places because of its bad reputation.
Meta and its CEO, Mark Zuckerberg, have had their fair share of scandals over the years. Most of these scandals have been about the misuse of private data and other privacy issues. The Cambridge Analytica scandal was the most well-known event, which led to Zuckerberg testifying before Congress.
All of these things were big reasons why the company decided to change its name to “Meta Platforms” in the end. The company worked hard and for a long time to win back people’s favor. In the end, company executives gave $24.2 million to political campaigns over the last three election cycles. Meta provides more money to politics than any other publicly traded company.
Senator Marco Rubio introduced a bill to limit the power and reach of social media companies in the U.S. that are “under the control of China, Russia, and many other governments of concern.” In other words, the bill was passed because of growing worries that TikTok and ByteDance, the Chinese company that owns TikTok, would give Chinese authorities access to information about US users. The bill was included in a crucial $1.7 trillion spending package for fiscal 2023. This means that it will probably pass later this week.
Even if the bill passes, it will only limit how TikTok can be used on the phones of government officials. This is not the same as a ban on TikTok everywhere. But the growing number of people who agree with this idea, along with worsening relations between the US and China and growing security concerns, makes it possible that the app will be banned everywhere. In this light, it’s hard to think of what happened last week as anything but a huge win for Meta and its ecosystem of social media apps.
What Does This Mean for the Ecosystem of Meta Apps?
Over the last few years, TikTok has become one of Meta’s most dangerous rivals. The short-video format of the app that China backed helped it gain more than a billion users in a short amount of time. Even Meta had to come up with a solution to compete with TikTok, called “Reels.” So far, “Reels” has been only a little bit successful at stopping TikTok’s fast rise to popularity.
A “We Are Social” study from earlier this year found that out of the 7.91 billion people in the world, only 5.31 billion have mobile phones, and 4.95 billion have access to the internet. Only 4.62 billion of those people use social media. This is an increase of 10.1% from last year, or 424 million more people using social media.
Meta’s most recent quarterly report says that 3.71 billion of the 4.62 billion active social media users used one of its apps. This is an 80.2% market share, which shows how big and broad Zuckerberg’s social media empire is.
Analysts and investors often need to pay more attention to the natural strength of Meta’s ecosystem in this situation. The Family of Apps is made up of Facebook, Instagram, Messenger, WhatsApp, and a few other less important products with untapped business potential.
Meta is the owner of four of the world’s top ten most popular social media apps. There are only two real threats to the ecosystem, and Pinterest (NYSE:PINS), Twitter (NASDAQ:TWTR), and Snapchat (NASDAQ:SNAP) are far behind with far less than one billion users. These are YouTube, which is owned by Alphabet (NASDAQ:GOOGL), and TikTok, which is owned by ByteDance and is being looked at by US lawmakers. In other words, it is unlikely that Meta will be seriously challenged in the social media space any time soon.
Is Meta Worth a Lot Because of This?
As we said earlier in the article, Meta stock has taken a beating. It is currently down 60.77% over the last year, and it hit a 52-week low of 73.11 in November. The last time this social media giant traded at these prices was at the beginning of 2018. This means that the average long-term investor has lost four years’ worth of capital gains. Even though META has had a rough couple of quarters, its top and bottom lines have gotten much better since then. This was mostly because the ad market was slowing, spending went up to fight Apple’s iOS changes, and a lot of money was put into the Metaverse project, which has so far cost more than $10 billion.
Only Netflix (NASDAQ:NFLX), whose stock briefly fell below $170 per share in June, came close to taking Meta’s place as the FAANG stock that fell the most this year. The streaming giant came back in a big way, leaving Meta with the unfortunate title. On the other hand, Apple is at the top of the list, but even the company that makes the iPhone saw a 27% drop during the period. Even though both Alphabet and Amazon (NASDAQ:AMZN) have lost a lot of money this year, Meta has lost less than they have.
Meta ranks third among the owners of major social media apps, behind Snap, which dropped 82% in 2022, and Match Group (NASDAQ:MTCH), which dropped slightly more than 69% in the same period. Since the beginning of 2022, Bumble (NASDAQ:BMBL) and Pinterest, also social media sites, have only gone down by 37.5% and 33.6%, respectively.
When this was written, Zuckerberg’s social media empire was trading at a very attractive 15.75x NTM P/E, 6.08x NTM EV/EBITDA, and 29.19x NTM MC/FCF.
Bottom Line
The situation with TikTok’s possible ban is similar to what happened in 2020 when the US banned Huawei, a popular Chinese phone and equipment maker. Concerns about national security were also raised. What started as small restrictions and other limits that didn’t have much of an effect on Huawei’s day-to-day operations has grown into one of the biggest crackdowns on a foreign-owned business in recent history. Huawei used to be a serious rival to Apple and Samsung in the smartphone market, but now it’s just a shadow of what it used to be. TikTok probably won’t get much more than a slap on the wrist from the current pressures, but it will be interesting to see how the scrutiny from US policymakers will affect the social media app.
Meta is in a unique position to be one of the few businesses that can benefit from the worsening relationship between the US and China. Many other businesses stand to lose money because of the complicated relationship between the US and China. If this is the case, the scrutiny will show that Meta is still the leader in social media, which investors will welcome with open arms. Even more importantly, it would draw attention away from Zuckerberg’s expensive and time-consuming Metaverse project, which took away from the discussion of an otherwise brilliant company that used its app ecosystem to build a monopoly-like hold on the social media space. It’s hard to give Meta stock a “Buy” rating until its strategic priorities in the Metaverse are reevaluated.
Featured Image: Unsplash © Dima Solomin
