Shares in Meta Platforms (NASDAQ:META) are up this week after a terrific earnings report. Its user base is growing, revenue is increasing, and the company is making moves to become more efficient.
Despite this, I don’t think that buying the stock is a good idea. At today’s prices, I see Alphabet shares as a much better investment.
Meta earnings
I thought Meta’s earnings report this week was impressive in virtually every respect. I still think that the company’s metaverse projects look like a financial black hole, but that’s my only real reservation.
A year ago, Meta was facing three major headwinds. Apple’s privacy updates were threatening its business, Facebook seemed to be losing ground to its rivals, and costs seemed to be out of control.
Fast forward to the present day though, and all of these seem to have subsided. And the earnings report from this week further bears out this view.
The number of active users on the company’s platforms increased across the board. This indicates that Meta (especially Facebook) still has a dominant competitive position.
Importantly, this translated into $28.65bn in revenue, up from $27bn a year ago. On top of this, management forecast revenue growth to continue in the second quarter.
The growth in revenue indicates that Meta has been finding a way to deal with the effects of Apple’s privacy update. This is something that should be encouraging for investors.
Earnings per share came in at $2.20, down from $2.72 a year ago. But this was partly due to costs incurred in cutting excess staff and facilities to become more efficient in the long term.
A stock to buy?
Despite all of this, I don’t plan on buying Meta shares. Warren Buffett notes that investors pay a high price in the stock market for a cheery consensus – and that perfectly summarises my reservation.
When investors were pessimistic about the company, the stock traded at a bargain price-to-earnings (P/E) ratio of less than 10. Today, the share price implies a more expensive P/E multiple of 25.
The stock is 92% more expensive than it was at the start of January, but I don’t think the business is 92% better. In my view, Alphabet is a better investment at today’s prices.
A year ago, investors were optimistic about Google and pessimistic about Facebook. Since then, Alphabet’s share price is down 5% and Meta’s share price is up 37%.
Today, things are the other way around. Facebook has shaken off Apple’s privacy obstacles, while investors are wary about the challenge from Microsoft’s ChatCPT for Google’s search dominance.
To me, that indicates that there’s a better opportunity in Alphabet shares at the moment. The company’s search revenue looks resilient and I expect it to continue to do well.
The challenges the business is facing are to be taken seriously and present a genuine risk. But I think that the risk with investing in Meta at today’s prices is much greater.
