Meta's worst may have passed, but that doesn't mean it's worth bottoming out

The bigger problem is that Meta's problems can be isolated.

On Wednesday, February 9, EST, Meta finally stopped its embarrassing "solo fall" between a vote of technology stocks that were picking up, and its stock price rose by 5.37%, surpassing the one-day gains of Netflix, Microsoft, Google and Apple.

Just before that, Meta also experienced four consecutive trading days of stock price decline, the lowest value of the company's stock price since July 2020, and was surpassed by Tesla, Nvidia, Berkshire Hathaway and other companies, falling to eighth in the national company market capitalization rankings.

Although there was a rebound on the 9th, what investors wanted to know was: Does this mean that The worst time for Meta has passed? If so, is this bottom worth copying?

1, long and short debate, this bottom value is not worth copying?

Statistically, Meta is currently cheap, with a price-to-earnings ratio of just 17 times based on expected profits this year, 40% lower than similar companies. Expected earnings are a very forward-looking indicator calculated based on consensus expectations given by analysts surveyed by FactSet. After Meta announced revised profit forecasts, analysts had sharply lowered their expectations.

Yingrui Asset Management Company J. Stern & Co. Repositioned Facebook. The company's Christopher Rossbach sees the meta sell-off as a huge opportunity for long-term investors. "Meta's valuation is very low, taking into account the valuations of different businesses, I think because of the size of the company and the sustainability of the business, buying at the current valuation is a huge opportunity."

Analysts remain generally bullish on Meta, giving an average price target of $329.28, which is already a sharply corrected figure after Meta's earnings report, but still 50% higher than Tuesday's closing price and 2% higher than the level before Meta's recent plunge.

However, there has been no substantial rebound so far since the Meta plunge, which also indicates that most investors have not yet entered the market. And, as Barron's reported, this "reflects Meta's serious problems in terms of earnings."

Wall Street's most pessimistic view of Meta is that users are leaving the platform for competitors like TikTok, while ad revenue is drying up due to a knock-on effect from Apple's privacy rule changes. And the meta-universe is still far from burning money to bringing profits. Not to mention that the controversy surrounding Meta's data security and personal privacy has never stopped.

If this is a common problem for social media companies, the problem seems to be better solved. But Snap and Pinterest, which have just released their earnings reports recently, did not reflect similar problems. So, the bigger problem is that Meta's problems can be isolated.

2) Will Zuckerberg become the next Jerry Yang?

Some people believe that the continuous decline in Meta's stock price reflects the dilemma of "Yahoo-style", but also means that an era is passing: once, with the rise of the mobile Internet graphic era, Yahoo, which represents Internet 1.0, has rapidly declined, and CEO Yang Jerry has stepped down from the altar of entrepreneurship and been taken over by Zuckerberg and Facebook; today, Facebook and Instagram, which represent Internet 2.0, are declining, and the short video era belonging to TikTok has begun, opening a new cycle of Internet media communication iteration.

In addition, there is industry media analysis, and more and more social media startups are also challenging the "Meta system": Messenger and Whatsapp from the Meta department are suffering from the rapid growth of Telegram and Discord, and the "Facebook group" has been largely replaced by Reddit.

Meta chose to use the metaverse to define the future Internet 3.0 era, but the concept of the definition does not represent the monopoly of the industry and the real leader: metaverse hardware, software architecture technology, transmission interaction technology, game content and technology are all influencing the development path of when the metacosm can land from the concept to reality. Meta's subsequent growth space in this field is also facing a head-on move with technology giants such as Microsoft and NVIDIA.

Meta's fourth quarter earnings report showed its boldness in responding to market changes and investing heavily in social product development: its R&D expenses increased by 35.2% year-on-year, and its total headcount increased by 23%. This investment should not be underestimated, especially based on Meta's existing huge capital, high-level technical and engineer talent team, and a total user volume of more than 2.82 billion people. Some optimistic investment analysis believes that the flywheel effect of its follow-up power cannot be ignored.

In addition, in response to changes in iOS, Meta has been developing new analytics and advertiser tools to improve ad targeting and measurement. As the path of transformation becomes clearer, capital markets may reassess the dilemmas facing Meta.

Barron's believes that the February 9 stock price rally may indicate that Meta's worst is over. But there is no doubt that Meta faces challenges, which could be reflected in the stock price in the long run. There may be investors who buy when they fall, but that doesn't mean there will definitely be a sustained rally that follows.

Text | Barron's Chinese edition is written by Sun Yixi and Guo Liqun

Edit | Kang Juan

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