It's been a rough 2022 for the overall stock market, to say the least. All major indexes and many blue chip stocks saw their stock prices plummet this year, but few companies have been hit as hard as Facebook parent Meta Platforms (META 1.54%). As of Nov. 28, Meta was down more than 67% year to date, and there's little reason to believe that things won't get worse before they get noticeably better.
Here are three reasons why I wouldn't touch Meta's stock with a 10-foot pole right now.
1. Meta's revenue is declining
Meta's main source of revenue is selling ads, and until the second quarter of 2022, the company had never experienced a decline in revenue since it went public in May 2012. Unfortunately, Meta followed up its Q2 loss with a disappointing Q3, when its revenue fell 4% year over year to just $27.71 billion. Maybe more concerning, though, is that its operating income dropped by around 46%, from $10.42 billion in Q3 2021 to $5.66 billion in Q3 of this year.
Those earnings figures may be disappointing, but it's not the financials alone that make Meta an unappealing stock right now: It's the reason behind the disappointing earnings. Meta's core business, digital advertising, faces -- and will likely continue to face in the near future -- declining demand from advertisers because there's so much macroeconomic uncertainty.
2. Apple is stepping into the digital ad arena
Even when the digital advertising space sees better days (which it likely will), another formidable competitor is now looking to scrape away at Meta's bottom line: Apple (AAPL -0.57%). Apple initially released a privacy update to its operating software in 2021 that made it easier for users to control their data and control how much access app makers had to it. That made it way more difficult for companies like Meta to track users' online activity. Apple's move was seen by some as evidence that Apple is looking to disrupt Meta's business, especially given recent additional changes to its App Store guidelines.
Apple's newest rule says companies like Meta can allow people to buy and manage advertising campaigns, but any ad bought in a social media app (like Facebook and Instagram, for example) is considered a digital purchase, and Apple will take a 30% cut. This includes such things as "boosted" posts on Facebook. Meta was unsurprisingly upset about the move, even going as far as to tell CNBC that Apple is changing its policies to grow its own business while undercutting others in the digital economy.
The entrance of Apple into the advertising business and potentially disrupting what was effectively a duopoly between Meta and Alphabet's Google will undoubtedly affect Meta's revenue generation.
3. Meta's future may be too reliant on building a metaverse
It's no secret that Meta bet big on the metaverse becoming a part of daily life -- so much so that Mark Zuckerberg decided to change the company's name to better represent where he sees it headed. The problem is that Meta's metaverse vision isn't quite in line with reality (no pun intended). Its Reality Labs segment, which operates all things metaverse, lost $3.67 billion in Q3, bringing the total loss to $9.43 billion so far this year.
It's common for projects of this scale to lose money before they can make money, but those generally have a clearer roadmap in front of them. It would also be easier to justify such losses if the consensus was that people actually wanted the metaverse. Meta's core metaverse product, Horizon World, had an initial goal of reaching 500,000 monthly active users (MUAs) by the end of 2022, but growth was so slow that the company lowered its target to 280,000. As of October, the number of MUAs was less than 200,000.
Other big tech companies are making their own investments into metaverse-related projects, but it seems Zuckerberg is betting Meta's future on its ability to bring the metaverse to the mainstream. It may eventually be successful in doing so, but it could also be very unsuccessful in doing so. Either way, pivoting a company of its size into something others would generally keep as a side project seems like a risky bet right now.
