mark zuckerberg head of meta platforms

The tech sector, and most equities for that matter, have had a terrible year thus far as macroeconomic conditions have shifted around the world due to high inflation readings in developed economies, rising geopolitical tensions, and elevated commodity prices.

That said, even though companies like Meta Platforms have not been exempt from being affected by these external variables, there have also been company-specific developments that have weighed on the performance of the stock.

Just to mention a few, the firm’s long-tenured Chief Operating Officer, Sheryl Sandberg, stepped down from her role after 14 years at the helm and will not be substituted by a single person. Instead, a group of top executives within Meta will assume a portion of her duties as Mark Zuckerberg categorized her as a “superstar who defined the COO role in her own unique way”.

In addition, Meta continues to suffer from investors’ disbelief in regards to the company’s sudden pivot to the metaverse – a virtual realm that the company is betting the horse on. Tons of resources have been invested into the development of this ecosystem. The task that has been assigned to the Reality Labs unit and it has dragged the company’s profitability in the past couple of quarters.

Finally, Meta stock experienced a sharp 26% single-day decline on 3 February this year as the company reported a decline in Facebook’s daily active users – a rare spot on an otherwise clean track record of quarter-to-quarter positive increases.

The combination of the external variables mentioned above and these company-specific developments are creating the perfect stock for Meta stock and that is reflected by this year’s 50% accumulated loss.

Can this tech stock ever recover from these large losses? What does the future hold for Meta Platforms stock? In this article, we dig deeper into the price action and fundamentals to outline plausible scenarios for 2022 and beyond.

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Meta Platforms Stock – A Closer Look at The Price Action

meta platforms stock
Meta Platforms (META) price chart – Source: TradingView

From a technical perspective, the price of Meta stock is on a clear downtrend and the open gap shown in the chart remains the most relevant resistance to overcome if the trend changes course at some point.

The stock has been unable to make a higher high in months and that emphasizes the strength of the current negative momentum. Moreover, Meta is standing nearly 57% below its 52-week high and 40% below its 200-day simple moving average.

Moving forward, the most relevant horizontal supports are standing at $165, $150, and $135 – the stock’s pandemic bottom. Can Meta drop that much in a short period?

Momentum readings are certainly favoring a short-term bearish outlook as the Relative Strength Index (RSI) has not managed to stand above 50 for more than a few days while the MACD just crossed below the signal line at a point when negative histogram readings are steadily increasing.

Fundamental Analysis: Is Meta Platforms Stock Undervalued?

According to Meta Platforms’ latest quarterly report, advertising revenues kept rising on a year-on-year basis but net income declined 21% during that same period as the company spent more money on research and development as part of its effort to keep investing in the metaverse unit.

The number of active people within Meta’s Family of Apps has kept rising as well and stood at 2.87 billion by the end of Q1 2022 but average revenues per person (ARPP) declined 3 cents compared to a year ago at $7.72.

Overall, Facebook’s bottom-line performance has been primarily affected by higher expenditures associated with the Reality Labs unit. Other than that, the business does not seem to be deteriorating to an extent that justifies the sharp decline that the company’s valuation has experienced.

With this in mind, investors’ most relevant concern appears to be if this bet will pay off or not in the future.

Even if this metaverse bet does fail, Facebook still has monetizable assets that remain largely untapped such as WhatsApp and its core advertising business remains strong despite the strong comparables from the pandemic era.

Currently, Meta Platforms is trading at 16.5x its forecasted earnings for the next 12 months and 13x its forecasted free cash flows for the next 12 months.

These are highly conservative multiples for a firm whose underlying business is as strong as that of Meta and whose balance sheet is as strong as an oak with zero long-term debt and cash, equivalents, and marketable securities totaling over $43 billion.

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