Social media titan Meta Platforms (META 0.14%) is under siege. The company last week reported its first-ever year-over-year revenue decline in the second quarter of 2022. Its already-widely-used social apps were reporting slowing growth, intense competition from the likes of TikTok, after-effects from Apple's user privacy changes, and economic challenges like a strong U.S. dollar. Together, these headwinds are really adding up.

Under the surface, though, Meta remains highly profitable, and management is using that profitability to repurchase lots of stock. About $14.7 billion worth so far in 2022 alone.

Should shareholders be buying too?

Is Meta falling for its own value trap?

Meta revealed it repurchased shares totaling $5.08 billion during the second quarter, bringing its 2022 to-date total to $14.7 billion. It's a significant slowdown from the pace of repurchases in prior quarters, but still a big return of cash to shareholders given that Meta continues to dip into the liquid assets on its balance sheet to do so -- for better or worse.

Metric Q2 2021 Q3 2021 Q4 2021 Q1 2022 Q2 2022
Net income $10.4 billion $9.19 billion $10.3 billion $7.47 billion $6.69 billion
Free cash flow $8.38 billion $9.71 billion $12.2 billion $7.78 billion $4.45 billion
Value of share
repurchases
$7.08 billion $14.4 billion $20.1 billion $9.51 billion $5.08 billion
Total cash and
short-term investments
$64.1 billion $58.1 billion $48 billion $43.9 billion $40.5 billion

Data source: Meta Platforms.

Typically, once a company matures, excess cash returned to investors via stock buybacks or a dividend is a good thing. So why would share repurchases be bad for Meta right now? As we've discussed here in the past, one issue is that Meta overpaid for its stock over the last year or so. Now that shares are sitting at multi-year lows, the pace of share repurchases is cooling off. It would be nice to see the pace of repurchases accelerating as time goes on, not slowing.

Another problem is that Meta has a lot going on, and perhaps investing cash on other things like product innovation would be more advisable. The metaverse, summarized in the "Reality Labs" business segment, was a $2.81 billion drag on operating-level profit in the last quarter, keeping the unit on track for $10 billion in annualized losses, as CEO Mark Zuckerberg promised it would. If more immersive experiences are indeed the future, maybe more investing on this front would help -- lifting not just Reality Labs, but also the slowing results from social apps Facebook and Instagram. After all, the metaverse isn't going to happen overnight. It will be developed incrementally with new features (like, for example, more video content on social sites) added over time.

However, as shareholders, we have to trust management is assessing returns on investment for its various projects, and if everything is well-funded and there's still leftover money laying around, stock buybacks are simply the best option right now. Times are tough (at least they are for Meta -- other digital ad companies are still doing well), and sometimes the passage of time is the only remedy as we wait for the company's current pace of investments to pay off. 

Buying when the news is terrible

There are plenty of reasons to be bearish on Meta right now, and with profitability taking a hit because of weak demand for ads on the company's social apps, the present valuation will likely get worse before it gets better. For the record, shares now trade for 14 times trailing 12-month earnings per share and 13 times trailing 12-month free cash flow.

The good news is that Meta is still generating lots of cash, it has loads of money on its balance sheet, and it still has billions of users worldwide. I believe the company will mitigate its issues and things will stabilize. If you believe that to be true too, now could be a good time to nibble. But make no mistake, patience will be required here. It could be a while (perhaps 2023) before Meta's revenue and profitability return to growth. But patience could be rewarded -- eventually -- if you follow management's lead and buy Meta stock right now.