Is This World-Renowned Brand in Value Stock Territory?

Meta Platforms (META -0.36%) may be one of the most powerful advertising platforms on earth, but it doesn't have the leverage that it once did. In this Motley Fool Live segment from "The Rank," recorded on March 14, Fool.com contributors Jason Hall and Travis Hoium discuss Meta's uncertain future and what investors should know. 

Jason Hall: I think it's almost like a utility. It's the company that everybody hates, that everybody uses. One of the most powerful advertising platforms on earth. Everybody except for Travis [LAUGHTER], but we also we found out that maybe it doesn't have as much leverage in advertising as we thought because of everything. We've had between Apple and Amazon with Google, with the changes they made about data tracking, that certainly has impacted Facebook's advertising business, which is its business.

Travis Hoium: To the tune of about $10 billion.

Jason Hall: Substantial. Then there's also the fact that user growth, not only slowed, but actually we saw it reverse a little. Those things are weighing on its company. While all of this is happening to its core cash-cow business, Mark Zuckerberg has very much pivoted to what's going to be next. In this case it's the metaverse. I think there is more uncertainty right now in Facebook's future than there has ever been and a lot of investors are convinced that management is going to blow a ton of money to try to make it something that's not going to be as great as what it already has. I think that's why you have, and I think of all of the stocks on here, guys, there's an argument that Facebook's the value stock here. If you look at it based on valuation, Travis.

Travis Hoium: That's the argument I'm going to post in Slido, an article that I put up late last week covering exactly. I think the challenges facing Meta that are bigger than we originally think because it's really easy to look at their price earnings multiple and go, oh, yeah this is a steal of a stock. Why would you not buy Meta stock?

Jason Hall: A lot of assuming about what that "e" is going to do. What is the earnings going to do?

Travis Hoium: There's three things that I highlighted. One, I think that you're right. Apple broke the company's advertising business model. Once you start to understand how Facebook ads actually work, it's creepy, but basically Facebook collects a ton of data on you. Facebook, Instagram, all those companies collect a ton of data on you because they have little trackers in all kinds of other things that you do. Not just when you're on Facebook, but when you go visit websites, when you're in apps.

Jason Hall: It follows you around the web.

Travis Hoium: Follows you all over the web. It knows where you are, it knows who you are, it knows your interests, all that stuff. Then it can match advertisements to you. Then the key to that is when you click on an ad, if you follow that and you make a purchase then the company making an ad can value how valuable that advertisement is. Maybe they are testing 10 different ads. They can do that iteration very quickly and they can optimize their ads. Basically, they are adding value to what typically are direct-to-consumer businesses. Businesses that want you to make an action, they want you to buy an item, they want you to install an app.

Apple basically broke the, did you buy the item or did you install the app part of that model. That's a really big deal. At the same time, I think this is really getting underplayed. There's a lot of competition coming into the market. As I've learned more from people who I know about how advertising works and how big companies spend money on things like Facebook and Instagram. It takes years to build that up, to go, what are we going to do? Now we got to add it to next year's budget. The next year we're going to grow that budget by 20 percent. It doesn't take six months to spin up an advertising business on these platforms.

As companies like Snapchat, Spotify, and then Alphabet as well, that's the big game in town. As they improve their advertising, it takes money away from Meta Platforms. Then I think the metaverse is going to be a much bigger uphill battle than Zuckerberg thinks. But we could spend a whole hour talking about that.