Meta Platforms (NASDAQ:META) stock has fallen nearly 70% so far this year. This share price collapse means that the owner of Facebook has now lost around £500bn of market value so far in 2022.
To put that into context, the value lost by Meta shares is equivalent to the combined market value of Shell, AstraZeneca, Unilever, Vodafone and Lloyds.
Was the owner of Facebook ever really worth more than all of these FTSE 100 companies put together? Luckily, I don’t need to answer that question. What I do need to do is to decide whether Meta stock now offers a buying opportunity for my portfolio.
Meta stock fell by 20% in October after the company reported a near-50% drop in third-quarter profits, due to rising costs and falling ad sales. However, the shares rose on Wednesday after the company said it would make more than 11,000 staff redundant.
In an email to staff, founder Mark Zuckerberg admitted he’d been wrong to assume that the strong growth seen during the pandemic would continue when life returned to normal.
He’s now taking steps to bring costs under control and right-size the business for the next few years. Unfortunately, there’s one area of Meta’s spending where losses seem likely to get bigger.
Zuckerberg’s big bet on the metaverse is holding back Meta’s profits. The group’s Reality Labs division lost almost $10bn during the first nine months of 2022.
Worryingly, Meta says that losses there are expected to “grow significantly” in 2023. It looks like Zuck’s metaverse spending binge is set to continue.
Although Meta can afford to fund this spending from its $40bn cash pile, the business isn’t generating as much as it used to.
The main reason for this is that Facebook advertising isn’t as profitable as it used to be. Tighter restrictions on collecting user data from Apple devices are making it harder to sell ads. Meanwhile, younger platforms like TikTok are also taking users away from Facebook.
Meta’s profits are expected to fall sharply this year. That could put added pressure on the group’s share price.
Facebook and WhatsApp are embedded in people’s lives all over the world. I think they’re likely to remain popular and profitable.
However, I’m not yet convinced Meta stock has hit rock bottom. Over the next couple of years, I think profits from Meta’s advertising business could continue to fall, as economic conditions remain tough.
At the same time, it looks like Zuckerberg’s big bet on the metaverse will continue to consume cash. This kind of maverick thinking sometimes pays off. In five- or 10-years’ time, we may all use metaverse technology in the way we use Facebook and WhatsApp today.
Metaverse technology might even become as widely used and universal as Microsoft products are today. If that happened, then I think Meta stock could certainly be cheap at current levels.
However, this situation has become too speculative for me. Meta is no longer the kind of disciplined and balanced investment I want in my portfolio. For this reason, I won’t be buying.
This post was originally published on Motley Fool
