With Meta Platforms (FB +2.32%) stock getting hammered today following its fourth-quarter earnings report, many investors may be wondering if this a good opportunity to buy shares of the Facebook parent company.
To decide whether Meta stock is worth a closer look after its decline, let's assess the reason behind the stock's move and whether the reason truly justified this big of a pullback.
Meta Platforms CEO Mark Zuckerberg. Image source: Meta Platforms.
Getting to the root of the problem
The main reason for the tech stock's sharp decline on Thursday is management's guidance for first-quarter revenue growth to slow significantly. The company guided for first-quarter revenue to grow just 3% to 11% year over year to between $27 billion and $29 billion. Analysts, on average, were expecting guidance for $30 billion.
"We expect our year-over-year growth in the first quarter to be impacted by headwinds to both [ad] impression and price growth," said Meta CFO Dave Wehner in the company's fourth-quarter earnings call. Specifically, the company expects continued challenges related to advertising measurement and targeting related to Apple's recent iOS changes. Other headwinds include lower monetization rates of new social media products like Facebook's TikTok-like Reels, foreign exchange rates, and supply chain disruptions that have impacted some advertiser budgets.
A buying opportunity?
These are some formidable issues. But Meta does think that over a "multiyear" period it can rebuild its ad optimization systems "to drive performance while we're using less data," according to comments from management in its fourth-quarter earnings call. Moreover, this isn't the first time Meta has faced advertising headwinds early in a social product's lifecycle.
"Right now, Reels monetizes at a lower rate than feed and Stories, but we expect this to improve over time," explained Meta Chief Operating Officer Sheryl Sandberg. "We've made successful transitions before, the shift from web to mobile and then another shift from feed to Stories. We have a playbook here."
So not only does Meta appear well positioned to eventually overcome these challenges, but investors now get an opportunity to buy the stock at just 17 times earnings. These headwinds definitely lead to new risks and narratives that investors will have to watch closely, but the stock's cheaper valuation after its decline may more than compensate for these new risks.
