Undoubtedly, Meta Platforms (NASDAQ: FB), or Facebook, isn’t the apple of many an investors’ eye. It’s not even necessarily because it’s ever been a bad investment, it’s because of rampant and visible economic, social, and governance (ESG) concerns that have always bugged its users.
There’s plenty more where that comes from though; let’s take a closer look at the upside and downside from today’s levels.
The downside risks for Facebook stock
It’d be a lie to say there aren’t a whirlwind of risks heating up for Facebook. Namely, data protection and related issues — the company may be pulling out of Europe — which would devastate the business.
Apple’s update wreaks havoc on its core revenue stream (advertising) which has weakened the company’s guidance. And then there’s user growth — Meta’s Facebook platform has topped out, facing difficulties to add any more new users to a social media site many would consider having gone stale.
And then there are the ESG issues I mentioned before. Evil won’t stop a company from making money, but the negative sentiment isn’t going to help the social media giant win over new investors.
But from an investment perspective, that’s the tip of the iceberg in relation to the long-term viability of its business, thanks to the metaverse.
Facebook’s metaverse problem
There’s a huge amount of uncertainty surrounding Meta’s metaverse plans. From a market value perspective, Meta really is betting that virtual reality will become much bigger than it already is — but the figures haven’t added up — yet, at least.
The virtual reality (VR) market is currently valued at roughly $8 billion and is estimated to grow at a 19% compound annual growth rate (CAGR) over the next five years, but Meta might have backed the wrong horse. If we look at augmented reality (AR), that market is worth approx $25 billion and set to grow at a 50% CAGR in the same timeframe. AR is something that all of the big 3 in social media do — I’m referring to TikTok and Snapchat in addition to Meta — but arguably, its peers are doing far better in that segment as well.
While this might look like a hit-piece from the outside, Meta is still a profit machine, and I think many of the issues will pass in time. From a valuation standpoint, Meta does indeed look like a bargain at these levels too. The business reported $118 billion in revenue for 2021, and if there are no serious hiccups, we can expect more of the same for 2022.
That being said, the core point of all of this is to be aware of all of the associated risks that come with investing in individual stocks, and for Meta, there’s a lot. Slowing growth does not mean this business will continue to topple but an investment in the metaverse that goes sour could seriously dampen the future outlook, should the venture fail.
Financial Writer at MyWallSt
David's favorite stock is Google. He's a daily user of its YouTube platform, where you can learn or find something brand new at the touch of a button. He believes the company will continue to grow for many years to come.