It’s been a troubling few days for Meta (NASDAQ: FB) investors, to put it mildly. The US tech giant slumped 20% on Wednesday following the release of latest trading news. Could now be a good time for me to buy Meta stock though?
Meta’s share price slumped following a panicked reaction to fourth-quarter financials. But let’s look at the good things first. The stock formerly known as Facebook continues to add overall users and an average of 2.82bn people used its platforms in the three months to December, up 8% year-on-year.
At a headline level Meta’s ‘Family of Apps’ — which include Instagram and WhatsApp — remain hugely popular. Mark Zuckerberg is hoping that the company’s decision to go all out on the metaverse will send user levels to the next level too. Analysts at Bloomberg think the metaverse will be the next big technological revolution with a value of $800bn by 2024.
Facebook users fall!
The problem for Meta, however, is that the costs of transitioning to the metaverse is walloping its bottom line. Total costs and expenses soared an eye-popping 38% in the final quarter of 2021, to $21.1bn. This overshadowed the 20% year-on-year revenues increase (revenues came in at $33.7bn). And it caused profits to fall a meaty 8% to $10.3bn.
Colossal costs aren’t the only thing spooking Meta investors either. The most headline-grabbing factoid of this week’s release was news of declining users at the California company’s core Facebook platform. The number of people logging in per day fell to 1.929bn in the final quarter of 2021 from 1.93bn in the prior three months.
What makes this number so shocking? Well it’s the first quarter-on-quarter drop in Facebook numbers in the company’s history. Fears that the social media platform is losing its sheen have been circulating for a long time now. This week’s news could be clear proof proof that Meta is suffering as competition for our attention rises.
Should I still buy Meta stock?
I think Meta’s share price slump this week could be the start of a steady decline. As equities analyst Laura Hoy of Hargreaves Lansdown said, the US tech share faces several major road bumps looking ahead.
The prospect of weaker advertising budgets is one. As Hoy noted, Facebook requires a lot of cash “to upgrade and expand its servers and networks”, which strong ad revenues provide. Another is the impact of more enormous research and development costs on profits. Total R&D spending here is expected to rise 26% year-on-year in 2022.
This week’s share price collapse provides an opportunity to buy Meta stock at a big discount to last week’s levels. But I don’t fancy grabbing a slice of the tech giant today. Sure, the metaverse could offer exceptional revenues opportunities over the long term. But in the meantime, Meta’s massive R&D costs and a weakening Facebook platform pose colossal risks. I’d rather buy other US shares 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. Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
