I think the best time to buy shares is when they’re cheap. That was the case for Meta stock (NASDAQ:META) a year ago. Now it’s up 275%.
However, great companies often keep on rising. That’s if they continue to execute effective operations that bring in increasing revenue.
Why the fall?
I think Meta’s share price decline starting in 2021 was way overexaggerated for the operational and financial concerns the company was facing.
I’ve broken down what happened to the company that contributed to this decline into three core causes.
One: Apple’s iOS privacy changes facilitated an opt-out of tracking, significantly affecting Meta’s core revenue stream of targeted ads.
Two: regulatory and antitrust challenges created concern over looming restrictions and fines.
Three: whistleblower Frances Haugen released internal documents that brought the company’s ethics into question.
These concerns were largely irrational in my opinion for a few reasons.
Meta’s revenue saw a 37% increase in 2021 — ad prices increased by 24% and ad impressions rose by 10%.
In 2022, its revenue decreased by only 1%. And while ad prices decreased by 16%, ad impressions increased by 18%.
In 2021 Meta’s total monthly active users hit 2.9 billion, and in 2022 hit 3.7 billion, which were both 4% year-over-year growths.
These results evidenced Meta’s adaptability in the face of significant challenges.
The mighty rise
The 275% meteoric rise experienced in Meta’s share price that began in November 2022 makes it fairly valued now, in my opinion.
I’ve also broken down what caused the stock’s comeback into three core causes.
One: Meta focused on efficiency, including a reduced workforce and team restructuring, producing results like $32bn in Q2 2023 sales.
Two: the company has continued to invest in augmented and virtual reality technologies along with artificial intelligence. I think this has provided a strong future business narrative.
Three: management repurchased $28bn of its shares in 2022, and has authorised an additional $40bn of share buybacks. Share buybacks can increase earnings per share and value by reducing outstanding shares.
I think 2023 has been a remarkable year for Meta. However, I don’t think the company is out of the woods yet.
Steady on…
Although the stock has done very well to return to its normal level, I can see significant risks in owning Meta shares right now.
For example, I view the company’s platforms as tremendously saturated. A slowdown in user growth could be a limiting factor for future revenue increases.
If projects like the Metaverse do not work out for the company, there is significant downside risk in the shares. The Metaverse is the company’s attempt at a life-like, interactive and digital world.
However, if the company continues to expand, focuses on efficiency, further diversifies its revenue streams and maintains its loyal user base, I think the investment could remain compelling. Even at the new ‘normal’ valuation, I think it could grow even further.
However, I won’t be buying the shares right now. I wish I had back in November 2022, but buying them now seems like I’ll just be getting average tech returns with all of the associated volatility.
I’ll be continuing to look for value opportunities in the tech space.
