Social media behemoth Meta Platforms (META -1.88%), which owns Facebook, Instagram, and WhatsApp, is staging a recovery after a tumultuous period.
Meta stock has bounced up by 18% over the last ten days, and investors might be wondering if it had already hit bottom when shares plunged to a 52-week low of $185.33 earlier this month. The rally arrested an overall decline of 51% since September 2021 amid disappointment about the company's full-year earnings report and the broader tech market sell-off.
But whether or not the weakness is over, this company is a great addition to any stock portfolio for the long term. Here's why.
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The stock is incredibly cheap
Meta Platforms is the leader in the social media space by a large amount. Over 2.9 billion people used its social networks each month during 2021, helping the company to generate $117.9 billion in full-year revenue. That's a massive leap from the $3.7 billion in revenue Meta delivered a decade ago, in 2011.
But the company has also been consistently profitable in that stretch, which sets it apart from many other technology outfits. It generated $0.46 in earnings per share in 2011, which ballooned to $13.77 last year -- and that's what makes Meta Platforms stock so cheap right now.
Based on that 2021 result, the stock trades at a price-to-earnings multiple of just 15.5 -- less than half the multiple of the Nasdaq 100 technology index, which trades at 32. Meta is heavily beaten down and would need to double in value just to trade in line with the broader market.
With a decade-long track record of consistent growth and profitability, the question is whether Meta Platforms deserves to be trading at a 50% discount to its peers in the technology sector. The answer over the long term will likely prove to be no, especially with an exciting new development initiative around the corner: the metaverse.
The metaverse could unlock unprecedented growth
When Meta Platforms released its 2021 full-year earnings report, there were two key reasons its stock plunged. First, it informed the market that Apple's changes to its privacy rules would impact Meta's ability to target users with advertising across its social media platforms, to the tune of $10 billion in lost revenue in 2022.
Second, Meta's Reality Labs segment, responsible for developing the metaverse, lost a whopping $10 billion in 2021. It raised questions about how much the company would need to invest in the new, virtual world before seeing a return. But the organization did rebrand from Facebook to Meta Platforms to reflect its focus on this project, so substantial financial commitments shouldn't come as a surprise.
The metaverse can potentially change the way we interact socially and even how we do our jobs. Meta Platforms envisions users existing as virtual avatars of themselves, surrounded by a self-sustaining digital economy that could feature all the popular brands we engage with in the real world. Meta plans to build the ecosystem, but it acknowledges it will take a collaborative effort from other software companies, and even makers of advanced hardware like semiconductors, to truly bring the metaverse to life.
The opportunity could be enormous. One estimate suggests the metaverse will be worth $800 billion in 2024, growing at 13.1% each year, which could mean a $1.6 trillion annual value by 2030. Another estimate suggests it could be worth up to $30 trillion over the next 10 years. Either way, it makes the $10 billion Reality Labs loss look like a drop in the ocean by comparison.
Why the stock is a buy now
Analysts predict Meta Platforms' earnings will contract by 10% in 2022 to $12.49 per share, given some of the abovementioned challenges. But that's expected to reverse quickly, with a return to growth in 2023 that should leapfrog its 2021 earnings result.
However, on the revenue side, the company should continue to kick its goals, with $132 billion in estimated 2022 sales representing 12% growth over 2021.
Since the market is forward-looking, waiting until 2023 or even late 2022 to buy the stock might result in paying a much higher price compared to today. With Meta trading at such a steep discount to the broader tech market right now, it's hard to envision a scenario where it gets even cheaper.
For investors with a long-term time horizon, buying the stock today might be a genius move when looking back in 10 years, even if it does dip again in the short term.
