Facebook Stock Crashed 58%: BUY or SELL?

By Andrew Stotz | August 15, 2022

What’s interesting about Meta is that it trades at a PE ratio of 13x

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The rise and fall of Meta’s stock price

During the pandemic, Meta’s share price surged to US$378
However, 3Q21 results were slightly below expectations and the share price dropped on announcement date

The rise and fall of Meta’s share price

The big shock came with the 4Q21 announcement.
Meta completely missed the revenue target.
Also, Apple’s changes in privacy rules limit customer tracking and hitting the advertising business.

The rise and fall of Meta’s share price

Met’s share price dropped before the 1Q22 announcement.
However, it exceeded analyst expectations and therefore rebounded.

The rise and fall of Meta’s share price

In 2Q22, Meta disappointed again with a weak bottom line.
The stock now trades 58% below its all-time high.

Let’s download the latest 2Q22 results

The press release starts with a statement of the CEO Mark Zuckerberg

For the first time in history, Meta recorded a decline in its revenue YoY!

Operating profit margin crashed, down from 43% to 29%.

Core business of advertising seems to have reached maturity

In 2Q22, it had fewer monthly active users

But monetization has room to improve

So, Meta could generate massive growth if it finds a way to monetize users outside of the US.

Meta has to diversify its revenue streams

Zuckerberg has placed a huge bet on the Metaverse.
However, Reality Labs revenue disappointed in 2Q22.

Zuckerberg is convinced the Metaverse will be a success – Massive ramp-up of CAPEX

It requires massive CAPEX and cash burn in the beginning.
There is no certainty that these investments will pay off big in the future.

More shocking than the flat revenue is the decline in profit

Operating margin shrunk to 29% from 46% in 4Q20.
The business segment Reality Labs continues to produce a US$3bn loss EVERY quarter.

Has Facebook lost its profitability? Let’s look at the fundamentals

On average, the Comm. Serv. sector has almost a 2x higher gross margin compared to the global average.

Meta is king in generating profits

The historical EBIT margin was massive at 40.8%.
But in 2Q22, it is now at 29%.
Is it the end of Meta’s dominance?

Don’t expect Meta to turnaround the negative trend in the short run

Strong dollar makes revenue abroad worth less

Let’s take the euro as an example.
In Aug-21, one euro was worth US$1.19.
Now, you only get US$1 for each euro.
The currency effect on revenue in this example is 15.9%.

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DISCLAIMER: This content is for information purposes only. It is not intended to be investment advice. Readers should not consider statements made by the author(s) as formal recommendations and should consult their financial advisor before making any investment decisions. While the information provided is believed to be accurate, it may include errors or inaccuracies. The author(s) cannot be held liable for any actions taken as a result of reading this article.

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