The market seems to have a love-hate relationship with Meta Platforms (META 1.54%). At times, investors praise the company, formerly known as Facebook, for its dominant position in the social media industry it helped pioneer.
At other times, it's vilified for its methods in achieving that success. Nevertheless, any investment has those in favor and those against. Let's look at the argument from each perspective.
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The bull argument
The central tenet of the bull thesis for investing in Meta Platforms is the massive user base. As of Dec. 31, the company boasts a whopping 2.82 billion daily active users across its family of social media apps. That was 8% higher than the same time the year before. Despite that massive size, Meta is still growing. Almost half of the planet's population logs onto one of its services daily. As a marketer, you would be hard-pressed to find another channel that reaches that scale.
Meta's apps are free to join and use; free is an excellent starting point for the customer value proposition. The other side of it is to deliver enough reason to keep folks coming back -- a feat it has undoubtedly achieved. Meta makes money by showing folks browsing the app and website advertisements. In the fourth quarter ended Dec. 31, the number of ads shown increased by 13% year over year, and the price per ad increased by 6%. In other words, Meta is delivering more ads and charging more money per ad.
The positive trends have snowballed over the years, and Meta has expanded revenue from $5.1 billion in 2012 to $118 billion in 2021. That's led to ballooning earnings-per-share growth from $0.01 to $13.77 in that same time.
The bear case
The bears will argue that the best days of Meta Platforms are behind it. The company itself acknowledged its prospects are challenged in 2022. When forecasting revenue growth for 2022, management told investors to expect 7% at the midpoint. If it hits that revenue estimate for the year, it would be the lowest in the last decade. The previous low was 21.6% in the pandemic-plagued year in 2020.
Several factors are causing the decelerating revenue, and what makes it troubling is that they may be long-lasting. Meta pointed to increasing competition for people's time. For instance, Tiktok is growing fast and becoming popular among the younger generation. People are also spending more time on YouTube and streaming content on the slew of streaming services launched during the pandemic.
Moreover, Apple has implemented changes that make it more difficult for Meta to track user activity. This harms Meta's ability to deliver precision targeting for advertisements. Of course, marketers are willing to pay more for qualified leads. There is no sense in showing an ad to a person in Boston for your local restaurant in San Diego. So as Meta's ability to target users diminishes, so will the return on investment for marketers. With a lower return on investment, their willingness to spend on Meta will decrease.
Overall, the bears have held more sway over Meta's stock and pulled it down 43% off its high. However, that might be an opportunity for the bulls to come rushing in. The stock is trading at a price to earnings and a price to free cash flow of 15.7 and 15.8, respectively. According to those metrics, that's the lowest price it has sold for in five years.
