While some companies have seen their stocks crater by a massive percentage, few have seen the pure market capitalization destruction as Meta Platforms (META -0.52%). The company was worth more than $1 trillion back in September 2021 but is now worth around $320 billion.
When essentially $700 billion in value is wiped out, that's an incredible fall. For reference, there are only five companies in the world that are worth more than $700 billion currently. So that means Meta Platforms has lost what nearly every company that has ever existed failed to gain.
But this tremendous fall may have set Meta's stock up for success, as it is cheaply valued. Could 2023 be Meta's comeback year? Or has the sun set on this former market leader?
Meta Platforms' divisions continue to struggle
Meta Platforms, formerly known as Facebook, switched its name and business model back in October 2021. It did this to signify its shift to the metaverse and used it to justify its spending on its Reality Labs division, which makes virtual and augmented reality products and software.
To say this transition has been a disaster is an understatement. Nearly everything has moved in the wrong direction for Meta. In Q3, revenue fell 4% year over year (YOY), while expenses rose 19% over the same period. This caused earnings per share to tumble from $3.22 last year to $1.64 this year.
While those are companywide metrics, the Reality Labs division is even worse.
| Reality Labs Metric | Q3 2021 | Q3 2022 | YOY Change |
|---|---|---|---|
| Revenue | $558 million | $285 million | (49%) |
| Operating loss | $2,631 million | $3,672 million | (40%) |
| Operating margin | (472%) | (1,288%) | N/A |
Data source: Meta Platforms.
The sheer amount of money Meta is lighting on fire is basically unparalleled. Few companies even have this amount of capital to waste, but Meta does, thanks to the advertising revenue it generates from Facebook, Instagram, and WhatsApp. However, this segment isn't doing well either.
| Family of Apps Metric | Q3 2021 | Q3 2022 | YOY Change |
|---|---|---|---|
| Revenue | $28.4 billion | $27.4 billion | (4%) |
| Operating profit | $13.1 billion | $9.3 billion | (29%) |
| Operating margin | 46% | 34% | N/A |
Data source: Meta Platforms.
While this segment is still profitable, it isn't what it used to be. However, Meta is controlling its expenses by laying off 11,000 people, or about 13% of its employees. Management also extended a hiring freeze through Q1 2023, so the company is actively taking steps to ensure losses don't widen, especially when advertisement revenue is harder to come by.
As Meta Platforms limps through 2022, 2023 may not bring much better news.
2023 projections aren't great
Until the economy recovers and advertisement revenue channels open back up, Meta Platforms will struggle. All of its real business prospects come from that segment because the Reality Labs moonshot may or may not work out.
Wall Street analysts don't expect 2023 to improve, as an average of 51 analysts project Meta will grow its revenue by 4.7% next year. They also expect earnings per share to continue declining, falling from $9.10 this year to $7.90 next year. With Meta Platforms trading at 15.11 times forward earnings, it's a pretty cheap stock. But you may be attempting to catch a falling knife for that price, especially if its Reality Labs division continues to burn cash with little revenue.
As of now, Meta Platforms doesn't look like a great stock to own for 2023. However, if the economy turns around and Meta's advertisement revenue stream increases, the stock will likely turn around due to its low valuation. Still, Meta would have to grow its revenue faster than its expenses, which currently seems like a far-fetched dream.
Meta has a lot of work to do before returning to investors' radar, so I think it's best to avoid it in 2023.
