10 years ago, Meta Platforms (META +0.83%) went public as Facebook. The social media giant, which owns popular platforms Facebook, Instagram, and WhatsApp, had been seemingly unstoppable as a public company -- until it ran into a series of headwinds over the last 12 months.
For the first time, Meta's annual revenue and earnings per share are set to shrink in 2022 compared to the year before, as it grapples with more competition and a tough economic climate.
But the company has a stellar track record of success, and this isn't the first time it has faced a mammoth set of obstacles. So far, it has surmounted them all, growing its revenue more than 20-fold in the nine years between 2012 and 2021.
Now, its stock is cheaper than it has ever been. Here's why its shrinking financials in 2022 might just be a blip on the path to more long-term success.
NASDAQ: META
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Here's what went wrong at Meta Platforms in 2022
A mixture of internal and external factors led to a disappointing 2022 for Meta Platforms, which saw its stock decline by 65% in the 12-month period. Internally, Meta's focus on building a virtual world - the metaverse - was met with widespread criticism from the investment community.
The company burned $9.4 billion on the project in the first nine months of 2022 alone, and since meaningful revenue is five to 10 years away, this has put a dent in its financial results. But CEO Mark Zuckerberg thinks the metaverse will eventually attract 1 billion users, who will each spend hundreds of dollars on digital goods.
Zuckerberg's not alone. An estimate by Bloomberg Intelligence says the metaverse could be an $800 billion opportunity as soon as 2024.
Externally, high inflation and rising interest rates have crimped household finances, which has led to businesses trimming their marketing spending. This placed pressure on Meta's core business selling advertising spots across its family of apps.
Plus, Meta has faced major competition from ByteDance's TikTok, which has become the world's most popular -- and fastest growing -- short-form video platform. It's reshaping the way users interact with social media and it's attracting a very young audience, which is stealing ad dollars away from Meta's core brands.
Meta has a stellar track record of success
Competition hasn't stopped Meta in the past. It once ate MySpace's lunch and crushed competitive threats from Snap by borrowing its "story" concept and integrating it into its own apps. Plus, Meta has watched other players come and go, like video-based platform Vine.
Now, Meta is building short-form video into Instagram and Facebook to challenge TikTok. It's also introducing new features like Notes, which is designed to make Instagram's chat feature more engaging, and Candid Stories, which borrows a live content sharing concept from the new, fast-growing BeReal app.
That ability to adapt to a rapidly changing social media landscape enabled Meta to grow its revenue by a whopping 2,250% in the nine years between 2012 and 2021. But its 2022 result is expected to come in slightly below last year's once the company officially releases its annual financial report in February.
Meta's profitability is also set to take a hit in 2022. In the recently reported third quarter, the company delivered $4.3 billion in net income, which was a 52% drop year over year, and its $3.6 billion quarterly loss on the metaverse project was partly to blame.
Meta Platforms stock is cheaper than ever
Based on its projected revenue of $116.1 billion in 2022, and the company's current market capitalization of $309 billion, Meta's price-to-sales ratio is just 2.7 right now, which is the cheapest level in its history dating back to its IPO day a decade ago.
Similarly, based on its projected earnings per share of $9.08 for 2022, and a current share price of $116.73, Meta's price-to-earnings ratio stands at just 12.8 at the moment, which is also an all-time low.
Not to mention, that P/E ratio represents a 46% discount to the P/E ratio of the Nasdaq-100 technology index, which currently trades at 23.7. In simpler terms, Meta is trading at about half the valuation of its peers in the broader technology sector, which might sound a little off base given this company's track record of success, plus how much it has in the pipeline.
That's where a big opportunity might exist. Meta's official financial results might shrink in 2022, but considering all of the new features it's rolling out across its family of apps, plus its recent cost cuts, and the long-term potential of the metaverse, it seems unlikely those difficulties will persist in the long run.
Additionally, economic headwinds like high inflation that have hurt consumers and forced businesses to cut their advertising spending might be steadily resolving, which could help reignite Meta's growth.
Investors might do well to buy Meta stock based on the company's long-term track record, and not its 2022 results -- especially at the current price.
