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Meta Platforms Is A Value Trap

By Cristian Bustos. Originally published at ValueWalk.

Pullbacks chevron top stock holdings of Andrew Hahn

Investors looking at Meta Platforms Inc (NASDAQ:FB) as an opportunity, given the 30% drop in stock value after its Q4 earnings, might be in for a value trap. The issue-ridden company is facing tough competition on several fronts while Facebook’s user growth has stagnated.

Q4 2021 hedge fund letters, conferences and more

Meta: A Trap

The stock plunge might attract many investors, according to Seeking Alpha, but the fundamental challenges faced by Zuckerberg’s company have created a totally different stage.

Despite the company scoring solid 2021 results in the shape of $118 billion in revenue —an increase of 37% year-on-year— and a 20% jump in 4Q revenue, the company’s daily users dropped by almost one million to 1.93 billion for the first time in its history.

“Based on a sequential QoQ decline in DAP (Daily Active People) over the last few quarters, investors should easily come to the conclusion that user growth may have seen its best days.”

Further, the company’s Facebook Reel —an alternative Meta has invested in to maintain user engagement on the platform— is facing its toughest foe in TikTok, which became the first non-Facebook app to top 3 billion downloads around the globe.

Dropping User Growth

With regards to the metaverse, “the Oculus Quest store has generated more than $1 billion in revenue and Meta will release a high-end VR later in 2022 while Project Nazare (Meta’s first AR glasses) is in good progress.”

However, the metaverse is not expected to make any money soon, and reality Labs —the business unit in charge of the new initiative— accrued revenue of $2.3 billion and $10 billion in operating losses, and during the last three years, the segment has lost more than $20 billion on revenue just short of $4 billion.

Another ingredient in the value trap talk is the Meta earnings report in comparison to that of Snap Inc (NYSE:SNAP).

“Snap (SNAP) reported a 4Q21 with revenue and DAUs up 42% and 20% YoY and provided a much more definitive 1Q22 revenue guide of 34%-38% growth (slightly above Street consensus) vs. Meta’s 3%-11% as both will be lapping a strong 1H21 when iOS impact wasn’t present.”

Meta is part of the Entrepreneur Index, which tracks 60 of the largest publicly traded companies managed by their founders or their founders’ families.

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