The latest stock market correction has adversely affected even the most dominant tech companies. Shares of social media titan Meta Platforms (META -0.76%) have tanked 51% since the beginning of the year. High inflation, a rising interest-rate environment, and the war in Ukraine have triggered a massive shift away from technology companies and into safer assets like bonds and value stocks.
While the Mark Zuckerberg-led business is facing its fair share of headwinds at the moment, investors should feel confident that the company will rebound nicely in the long run. On that note, here are three reasons why shrewd investors should invest in the social media king right now.
Image source: Getty Images.
1. Meta runs a hearty business
After delivering a subpar earnings report to close out 2021, Meta recovered nicely in its opening quarter of this year. Total revenues grew 7% year over year to $27.9 billion, in line with Wall Street estimates. Diluted earnings per share contracted 17.6% to $2.72, beating consensus forecasts by 8.1%.
Daily active users on the Facebook platform expanded 4.4% to reach 1.96 billion, and monthly active users rose 2.9% to 2.94 billion. In the earnings call, Zuckerberg mentioned a mixture of growth headwinds at the moment, most notably, Meta's transition to short-form video, Apple's iOS privacy changes, softness in e-commerce, and harmful side effects from Russia's invasion of Ukraine.
These obstacles appear very short term in nature. I still see a business that serves over one-third of the global population on a monthly basis, boasts $14.9 billion in cash and cash equivalents, and generated nearly $40 billion in free cash flow (FCF) over the past 12 months.
It's easily the biggest social media platform in the world, enjoying a market share of 37%, and it made $27 billion in advertising revenue last quarter alone, more than Twitterand Snap's full-year 2021 advertising sales combined. Meta's current situation isn't ideal, but the social media Goliath is well equipped to weather any economic storm.
2. The metaverse revolution is here
If you couldn't already tell from its name and stock ticker, Meta plans to be a key player in fostering the development of the metaverse. Still in its early innings, the metaverse can be defined as a digital world powered by virtual reality (VR), augmented reality (AR), artificial intelligence (AI), blockchain, and other computing technologies. Meta's Reality Lab's operating segment, which produces VR and AR hardware and software, generated just $695 million in revenues in Q1, equal to 2.5% of total sales.
At the same time, the segment suffered an operating loss of $3 billion, showing that its metaverse business will take time to develop. Investors shouldn't be too concerned, however, because the company has a strong core business and boatloads of cash available to comfortably invest in the growing segment.
In addition, according to Precendence Research, the global metaverse market size is expected to expand at a compound annual growth rate (CAGR) of 51% through 2030, up to a walloping $1.6 trillion. That represents jaw-dropping growth, and although Meta's Reality Labs business is currently operating at a loss, the company is well positioned to capture a solid share of the market in the years to follow.
3. Favorable valuation
By virtue of the recent sell-off, Meta is now trading at a low valuation. Today, the stock has a forward price-to-earnings multiple of 14.3, which indicates a significant discount to its five-year mean of 27.9. That seems like an exceptionally low valuation for one of the world's premier tech companies. On top of its best-in-class core advertising business, the company enjoys a long runway for growth in its young Reality Labs segment.
At existing levels, Meta is a no-brainer buy and grants investors a very strong margin of safety. Even if you're not a fan of the company's metaverse transformation, you're still investing in a highly profitable, cash-generating business that sits at the peak of the massive social media industry. Meta could generate fortunes down the road for those who invest in the stock today.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Luke Meindl has positions in Apple. The Motley Fool has positions in and recommends Apple, Meta Platforms, Inc., and Twitter. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
