Strong competitive advantage? Check. Proven profit machine? Check. Future growth potential? Check. Facebook and Instagram owner Meta Platforms (NASDAQ: FB) seems to have a lot going for it. But the Meta share price has tumbled 51% in the past year.
With a price-to-earnings ratio of 12, is this now a screaming bargain buy for my portfolio?
The bull case
With investor sentiment towards the company having soured, I think it is worth recapping just some of the things that make the business attractive. Its collection of social media platforms is integral to the daily lives of vast numbers of people and businesses. In March, 2.9bn people were counted by the company as active on a daily basis. Not only is that number huge, it is 6% higher than in the same period the prior year. Meta remains in growth mode. First-quarter revenues were up 7% compared to the equivalent quarter last year.
The stickiness of such platforms means that many users will continue to use them rather than going to the effort of moving to a new provider. On top of that, Meta benefits from a network effect that means users could not get quite the same experience anywhere else.
That adds up to a sizeable competitive advantage that could help fuel profits. The company is already strongly profitable. In the first quarter, it reported profits of $7.5bn.
The bear case
Given all that, why have many investors been dumping Meta? One concern is the durability of its competitive advantage as users move to other platforms. I do see this as a risk but that has always been the case. Facebook has grown through giving users what they want. Acquisitions such as Instagram have also allowed it to reshape its customer base quickly. I do not think the company’s platforms are going to fade into irrelevance in the short term.
There have also been concerns about executive changes such as the planned departure of the company’s chief operating officer. I do not think such moves should make much difference to the long-term investment case of a company with a proven business model and the scale of Meta.
My move on the Meta share price
After the Meta share price collapse, I now think the company looks attractively valued. I like its long-term prospects and strong competitive advantage.
Over recent days, I have been thinking about adding it to my portfolio at the current price. But as I started thinking more about a potential purchase, I realised that I am uncomfortable about the impact I think some of the company’s social media platforms are having on society. Foolish investing targets being richer, but also happier. I do not currently think that owning a slice of Meta would make me happier.
Yet I own tobacco shares and would happily own shares in alcohol companies, both of which produce products that can be socially harmful. But for some reason I do not feel I want to own even a small part of Meta. Every investor has their own priorities. I do think the current Meta share price looks like a bargain and potentially buying it now could help make me richer in future. But despite that, I would rather hunt for other bargain shares I can buy for my portfolio instead.
