UK investors have been piling into Meta (NASDAQ: META) stock recently. Last week, Meta – which is down 70%+ this year – was the most bought stock on Hargreaves Lansdown.
Should I follow the crowd and snap up the stock for my own portfolio? Or are there better growth stocks to buy today? Let’s discuss.
Is now the time to buy Meta stock?
Meta’s Q3 results, posted last week, weren’t exactly very encouraging. For starters, the results showed the company is being impacted by the global slowdown in advertising (Facebook and Instagram generate revenues through advertising). For the period, revenue declined 4.5% year on year to $27.7bn.
Secondly, the company’s profit margin and earnings per share were down significantly year on year. For the period, costs and expenses increased 19% year on year to $22.1bn. As a result, operating margin fell to 20% from 36% a year earlier. Meanwhile, earnings per share fell to $1.64, down 49% year on year, and well below analysts’ forecast of $1.86.
On top of all this, the company revised its projected 2023 expenses higher, saying it currently expects expenses to amount to $96bn-$101bn next year, up from a revised estimate for 2022 of $85bn-$87bn. It also said that operating losses associated with its metaverse division, Reality Labs, would grow “significantly” year on year.
This suggests Meta’s profitability isn’t going to bounce back soon.
Metaverse uncertainty
It’s the expenses and losses associated with the Metaverse unit that have spooked investors here. Right now, Meta is throwing a ton of money at the venture in an effort to be a leader in the space, with no guarantee that it will pay off (and if it does pay off it may not be for 10 years). And investors don’t like this.
Brad Gerstner, CEO of Altimeter Capital, for example, has called the company’s investments in the metaverse “super-sized and terrifying“. Gerstner recently penned an open letter to Meta CEO Mark Zuckerberg saying that the social media company should limit its investments in the metaverse to $5bn per year (versus $10bn-$15bn a year now) in order to boost free cash flow.
Meanwhile, at least eight brokerages cut their price targets for Meta stock after the company’s Q3 results. Baird’s cut from $150 to $80 was the most dramatic. That implies further share price downside from here.
My move now
As for my thoughts on Meta stock, I’m happy to leave it on my watchlist for now. I do think the metaverse has potential. This could be the next version of the internet.
However, like other investors, I’m concerned about how much money Meta is throwing at this new digital world right now. The huge amount of spending has implications for profitability and free cash flow, both of which have a big impact on a company’s share price.
So, right now, I’d rather invest in other Big Tech stocks such as Alphabet, Microsoft, and Amazon. These strike me as safer bets than Meta stock.
