Meta Platforms (FB 0.50%) is the world's largest social networking company, with brands such as Facebook, Instagram, and WhatsApp in its arsenal. The company is consistently at the forefront of innovation, and its enormous size hasn't stopped it from quickly adapting to compete with newer platforms.
But that has caused Meta some headaches recently. Investors have taken issue with the company's sizable investment in a new technology: A collection of virtual worlds known as the metaverse. At a time when the Nasdaq-100 technology index is trading in a bear market, investors like to see capital preservation, not excessive cash burn. It's partly the reason for Meta stock's 50% decline from its all-time high.
To make matters more challenging, Sheryl Sandberg, the company's chief operating officer of 14 years, announced Wednesday that she'll be stepping down from her high-profile role in the fall -- although she will remain on the board of directors. So is Meta stock a buy, sell, or hold right now?
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A storied run of success
Sandberg joined Meta Platforms (formerly Facebook) in 2008, when CEO Mark Zuckerberg was just 24 years old. She brought a Harvard education and a wealth of expertise to the role of COO, with experience working as the vice president of global online sales and operations at Alphabet's Google.
But Sandberg's greatest responsibility was perhaps to be a guiding light for Meta's young prodigy, who might've been unaware at the time that his creation was about to grow into one of the largest global companies. Together, Zuckerberg and Sandberg positioned Facebook as a go-to advertising platform for small businesses, navigated an initial public offering (IPO), and remained a step ahead of the competition with timely acquisitions of assets like Instagram and WhatsApp in 2012 and 2014, respectively.
Sandberg took on more responsibility at the company in the years following her initial appointment and has undoubtedly been a major contributor to Meta's staggering run of growth.
Sandberg will leave big shoes to fill, but she will be replaced by another Facebook veteran, Javier Olivan, who first joined the company in 2007. He currently works as the company's chief growth officer and was one of the architects behind the platform's global expansion.
A relentless innovator
People are often a company's greatest asset, especially in the growth phase. But Meta has built a presence that captures the attention of 3.64 billion users each and every month, a legacy that will likely outlive any one employee.
Meta burned $10 billion in its Reality Labs segment during 2021 trying to build the metaverse, which it thinks could be the future of social and professional networking. It followed that up with another $2.9 billion segment loss in the first quarter of 2022.But investors' concerns over this expenditure might be short-lived considering the wide-ranging estimates of the metaverse's value, which swing from $800 billion annually by 2024 to a whopping $30 trillion between now and the end of the current decade.
Meta has already demonstrated some intriguing results from its research and development. While virtual reality is the primary way to experience the metaverse, its new Project Cambria mixed-reality headset allows the wearer to live in the physical world with digital enhancements projected into their vision. This could change the way office-based work is done, because Project Cambria will allow users to browse the equivalent of multiple desktop screens in one view, meaning workers would no longer need to be chained to their desks.
Meta Platforms is a great value
Even ahead of any meaningful financial contributions from the metaverse, Meta Platforms' existing business is incredibly strong. The company has generated $13.22 in trailing-12-month earnings per share, placing its stock at a price-to-earnings multiple of just 14.2. That's a 44% discount to the Nasdaq-100 index, which trades at a multiple of 25, implying Meta would need to rise in value by 78% just to trade in line with its tech-sector peers.
NASDAQ: FB
Key Data Points
The existing business does face challenges, though. Meta is struggling with Apple's new privacy rules that allow users to opt out of being tracked across the internet by social media companies, which makes it difficult for platforms like Facebook and Instagram to deliver accurate, targeted advertising. Meta estimates the changes will cost it $10 billion in lost revenue this year.
Plus, cash burn in the Reality Labs segment will eat into the broader company's profitability for the foreseeable future, which will likely cause a small dip in earnings per share for the 2022 full year.
But with all of that said, Meta Platforms stock is trading at a steep enough discount to the market right now that it's an incredibly attractive buy. And the further investors look into the future, the better the story could get, with the onset of the metaverse potentially driving the next phase of growth.
