Meta (Facebook) and should you invest in it

 Fundamental analysis (Qualitative)

(Note: I may or may not hold this stock and any stock suggestions are highly risky and subject to market risks. Any Queries, you can send an e-mail to wilmangroup2020@gmail.com)

In my opinion, when thinking of valuable companies to invest in for the long term -  app or online-based companies are a huge no go for any investor due to the high chance of it getting replaced  easily. I would call such app-based companies “typewriter companies”(A company whose main source of income can get easily replaced) . Since nearly 98% of Meta’s revenue is coming from Facebook, Instagram and WhatsApp, then it should belong in the typewriter company category, right? Well, if  Meta was only responsible for Facebook and Instagram, I would strongly suggest to an investor to stay as far away as possible from this company and categorise it as a typewriter company. But the recent investment of more than 10 billion USD in Augmented Reality has made me look back at this “Typewriter company” and really made me think. Can this social media giant grow even further to be a revolutionary next-gen augmented reality company that will change the world? - the answer is a no………for now? 

Meta(Facebook) has been investing heaps of money into the “Metaverse” and the metaverse is a risky venture even for a company like meta which has tons of cash reserves with them. The technology they are trying to create seems impractical, but only for the near future. Who is to say that we won’t hop on the “Metaverse train” after five years? You can ask me - why would people even use the metaverse? –To answer that I will give you the same definition of metaverse that made me understand what it is. I found out about the metaverse in a shady crypto website that did a surprisingly good job of explaining to me what the metaverse is. It stated that the metaverse is a reality where people can practically do everything online using their own avatar. Online shopping, gaming, work and many more activities. So, the possibilities are endless? right?

So should you invest in Meta?. I’m taking a standpoint and giving it a resounding no…. for now. Although I won’t be investing in this company soon, I will be waiting anxiously to see what they will be doing in the future. The year 2022 will be a crucial year for the metaverse. For Facebook, its time as an online platform will be slowly dying out like a candle in the wind, and I know this because even Meta's CEO – Mark Meme-man Zuckerberg is Skeptical about Facebook's future. Maybe that is why he created the metaverse in the first place, to give hope to the investors while he hides the eventual doom that is Facebook. Although this might be the case, upon looking more into Mark, who seems to be emotionless, we see a highly intelligent being who created the social media movement. After all, Mark was the one who created Facebook, who is to say he won’t create the next big thing.

Financial Evaluation/Risk Factors

Even though investing in the company is a no, for now, let's talk about their finances and latest news-

Recently the news has been filled with information about Facebooks parent company – Meta. In this month of February, the share price has gone down nearly 26% -

Reasons for the decline of share prices

 1) Facebooks decline in users for the first time in 18 years.

 2) Apple’s privacy changes enable users to choose whether apps can track them or not.

 3) Lawsuits, government regulations and overall uncertainty of the future of the company.

(These are only the main 3 reasons for the decline, there are plenty more!)

 Meta is an Internet-based company, and its “Family of apps” (Meta’s name for their app-based services) includes Facebook, Instagram and WhatsApp. These FoA’s (Family of Apps) makes up nearly 98% of the revenues of META.

My analysis of these Family of Apps(FoA) services –

Facebook – “Likely to go down over time, with already declining user rates”. But the decline for the fourth quarter of 2021was 0.12% of users which is almost negligible but has scared investors and hence lead to the downfall of the share.

Instagram – “Highly addictive app, strong user base but faces competition from TikTok and YouTube”

WhatsApp – “Strong user base, but not really Revenue generating in my opinion due to lack of ads”

FoA Facts for the year 2021

-        1. Saw a 36% increase in revenue in 2021 (an increase of ~$31 billion)

-        2 Cost and expenses increased 29% (an increase of ~$13 billion)

-       3) Income saw a 45 % (increase of ~$17billion)

Now other than its Family of Apps, it also has its Reality Labs projects which are currently going at a loss and only producing 2% of Meta’s revenue. But Meta has been investing heavily in it, nearly 10 billion in the year 2021-2022. What does reality lab consist of? it consists of augmented and virtual reality products as explained in the fundamental analysis of the company. For now, the revenue is mostly from its sale of hardware such as Occulus rift (gaming and AR gear)

Competition – Even though Meta is such a huge company, its competition is also huge in size, Alphabet (Google) Amazon, Apple, Byte Dance (TikTok) Microsoft are some of its major competitors. You know what they say, the larger the size, the harder they fall. Facebooks competition is so strong they could literally annihilate the company if they really wanted to.

Other Risk Factors (from the Financial reports of META February  03,2022)

 

-    1) Loss of revenue due to lack of spending from advertising.

-    2) Unfavourable Media Coverage.

-    3) Slower user and Revenue Growth.

-    4) Government regulations/ Litigations.

     At the time of writing this blog, Meta is trading at a P/E ratio of just 17. So based on their latest Annual Report and fundamental analysis from my part - NO

   

    My name is William and I am a CFA aspirant, I love doing analysis on these companies and I hope to follow up with more blogs. I currently hold both US and Indian stocks and will be looking to analyse stocks in all sectors once I have fully understood how to give stocks ratings based on their current value and future predictions. Thank you for reading and I hope you can spread this blog to your friends if you found this beneficial.