Meta Platform’s shares are a buy today

With Meta Platform’s shares down 46% this year, I believe I’m buying its social media business at a bargain price, with a free bet on the metaverse.

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Shares of Meta Platforms Inc. (NASDAQ: FB) have been on a roller coaster this year. The share price dropped significantly after the company’s fourth-quarter 2021 earnings release. It then rallied over 15% after the release of its most recent earnings.

The backbone of Meta’s business is advertising across its platforms. Revenue for Meta’s family of apps – Facebook, Instagram, and WhatsApp – came in at $115bn for the year ending December 2021. I believe the value of this side of its business is worth significantly more than the current market price indicates. That means the metaverse is included in the price for free.

Emerging growth

Meta’s presence in the developed markets has now matured and it’s not experiencing the growth it once did. The company’s shares have experienced recent weakness due to the falling number of daily active users (DAUs). However, Meta’s strategic partnerships with mobile carriers in developing markets have led to 66m new users during the second half of 2021. This will help to offset the slowing growth Meta is experiencing in developed markets.

Aside from Meta’s legacy social media networks, the company has begun to heavily invest in the metaverse through its Reality Labs division. The metaverse allows Meta to diversify revenue and tap into the next generation of the internet (Web 3.0). The number of crypto wallets today stands at an estimated 230m. Putting that into perspective, this equates to the number of internet users in 2000. This space has exploded in popularity over the past two years, and its growth should continue.

Cheap as chips

Today, the company is priced ridiculously cheap in my opinion. Meta trades at an eight times forward enterprise value-to-EBITDA (EV/EBITDA) multiple, the cheapest it has ever been. On average, since FB’s IPO, the market was willing to pay 16 times EBITDA for the company. I believe this is a fair multiple for the company if it succeeds in continuing to drive growth through emerging markets. Also, Meta’s return on invested capital (ROIC) averaged 20% since 2016. This suggests its high spending on Reality Labs should lead to higher growth at some point in the future.

What is there to worry about?

Facebook had been the stalwart of social media until 2020 when TikTok exploded onto the scene. Chief executive Mark Zuckerberg is a very shroud operator. On Meta’s recent earnings call, he blamed competition from TikTok being the reason for Meta’s weaker earnings (for Q4 2021). I believe he did this in an attempt to ease concerns of anti-trust regulators, which seems a very smart move. TikTok is very much a Gen Z platform and does not come close to Facebook in terms of network effects. Facebook has 2.9bn monthly active users, which should continue to grow globally as outlined above.

Betting on management

The success of this stock will depend on execution by management. Management’s ability to continue raising the number of DAUs for its family of apps through movement into emerging markets, as well as its ability to execute on Reality Labs, is paramount. The metaverse may be a few years away from becoming mainstream, but if it pays off, I could be handsomely rewarded for adding to my holdings in in Meta.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Peter McMullan owns shares in Meta Platforms. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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