Meta Platforms Inc (FB +1.41%) is having a challenging time lately. While it delivered an acceptable result in the fourth quarter of 2021, the company guided for a much weaker first-quarter result in 2022. The tech company attributed the weak guidance mainly to changes in IOS privacy policy and an evolving regulatory landscape.
Surprised by the weak guidance, investors sold off the shares heavily -- Meta's share price has fallen by more than 40% (as of writing) since the earnings release in February. Still, I do not think investors should completely write off Meta, at least not before considering the other side of the coin.
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Facebook advertising is still a fantastic business
One of the major concerns with Meta is the slower growth in its advertising business -- revenue grew 20% in the fourth quarter of last year, much slower than the growth of 31% in 2020. Worse, the tech company expects revenue growth for the first quarter of 2022 to fall to just 3% from 11%.
While nobody likes a slower growth rate, investors should look at the positive side of things. To start, the advertising business is likely to continue growing, albeit at a slower rate. While there are obvious challenges ahead, management is not sitting still and is trying its best to execute. To this end, the management team led by founder and CEO Mark Zuckerberg has one of the best execution track records -- having grown revenue from $3.7 billion in 2011 to $118 billion in 2021.
Besides, Meta has other levers to keep growth coming. First, it can improve the monetization of WhatsApp and Instagram. Next, it could grow Facebook revenue in developing markets thanks to the low average revenue per user. For perspective, Facebook's average revenues per user in the U.S. and Europe were $60.57 and $19.68, respectively, for the fourth quarter of 2021. The same figures in Asia-Pacific and the rest of the world were $4.89 and $3.43, respectively.
And above all, the Facebook family of services (Facebook, Messenger, Instagram, and WhatsApp) are indispensable to the users. People use these tools to connect with their family and friends and for other purposes like news, entertainment, shopping, and more. As long as users find it valuable to spend time on these services, advertisers will have no choice but to keep their advertising budget on Meta.
Meta has the necessary resources to invest in the metaverse
Meta has been an incredible growth story for the last decade. The high growth rate, however, did not stop it from minting cash -- the tech company grew its operating cash flow from $1.5 billion to $57.7 billion in the last decade.
Meta's strong cash flow is a springboard as it ventures into new areas. The biggest of them by far is the pivot toward the metaverse. For starters, the metaverse is a virtual world where users can socialize, work, have fun, and more. Companies in the metaverse leverage technology like virtual reality and augmented reality to break down the barriers between the physical and the virtual worlds. The ultimate aim is to provide an immersive experience to users.
While promising, the industry is still at its nascent stage of development. It will take a lot of time, work, money, and collaboration from multiple stakeholder groups before the industry can reach primetime. Meta's latest numbers clearly illustrated that. It generated $2.3 billion in revenue from this segment, a minuscule 2% of its 2021 total annual revenue. Losses, however, were at $10.2 billion for the year.
Fortunately, Meta has all the ingredients to invest in for the long term. It has a solid balance sheet ($48 billion in cash and cash equivalents and marketable securities ), a profitable advertising business, talents, and technology. With these resources and the support of a committed management team, Meta is in a prime position to ride this multi-year tailwind.
