The rebranding of Facebook to Meta Platforms (NASDAQ:META) in October 2021 coincided with the early stages of a substantial downtrend in the company’s share price. Last year, Meta stock collapsed 65%, trailing the performance of the Nasdaq Composite Index by a significant margin.
However, the stock has since rallied 126% from its November 2022 lows to just above $205 today. This means the five-year return is back in positive territory. But is the firm’s reputation as a growth stock to beat the market justified?
Let’s explore the social media giant’s performance over the past half-decade and where it could go next.
Five-year return
If I had $1,000 to invest five years ago, I could have bought six Meta shares at $157.81 each, leaving me a little over $53 as spare change.
Today, my shareholding would have increased in value to $1,232.10. On the face of it, that looks like a respectable 30% return.
However, over the same timeframe the S&P 500 gained 55% and the Nasdaq advanced 72%. Meta’s underperformance relative to major indexes coupled with the company’s lack of dividend payments means the total return is rather disappointing in my view.
So, why has Meta stock struggled?
The metaverse flop
I think it’s largely due to the company’s misplaced bet on the metaverse. This involved a radical name change, a belief that the hypothesised digital universe would be the company’s future, and expensive investments in virtual reality and augmented reality technologies.
While the metaverse concept might have some merit, I struggle to see the business case behind it. Indeed, Meta’s financial results show that it’s come with an enormous price tag. The firm’s Reality Labs unit, which houses the metaverse technologies, posted a $4.28bn operating loss in the fourth quarter. That translates into cumulative losses of $13.72bn for 2022.
Perhaps the clearest sign of the metaverse flop is the story of Horizon Worlds — Meta’s flagship virtual playground. It more closely resembles a digital ghost town. The company failed to attract anything close to its goal of 500,000 active monthly active users and it’s struggling to retain the users it has managed to secure so far.
Social media king
That said, Meta exhibits strength in its traditional arena of social media. Advertising revenues from the company’s family of apps, which include Facebook, Instagram, and Whatsapp, account for the vast majority of the firm’s income.
A range of new features, such as Reels and Candid Stories, are welcome innovations. The company also stands to benefit from a mooted TikTok ban in the US should this eventuality materialise. The Chinese social media platform has been a growing source of competition.
Should I buy this stock?
I’m not excited by Meta’s change of direction in recent years. Maybe I’m missing the bigger picture, but to me it looks like an expensive blunder that has cost the company dearly.
Although it still dominates the social media landscape and should continue to derive good revenue from its core offerings, I think there are better stocks for me to invest in currently.
So, I’m steering clear of Meta stock for now. However, I’ll keep a close eye on the company’s progress for evidence of concrete revenue generation that could ignite my interest.
