Is The Worst Performing FAANG Stock of 2022 a Buy?
The tech-centric Nasdaq Composite is home to hundreds of corporations, but few are as prominent as those sometimes referred to by the acronym "FAANG." This group includes several major companies, including Facebook parent Meta Platforms (NASDAQ: META) , Apple , Amazon , Netflix , and Google parent Alphabet . Despite their prominence, these high-flying companies haven't escaped the recent sell-off.
The worst performing of these stocks this year has been Meta Platforms. The social media specialist certainly has seen better days, but is a rebound in the cards for the company?
Meta Platforms is facing severe headwinds
Let's consider why Meta Platforms performed so poorly this year, starting with the company's main source of revenue, advertising. A challenging economic environment, marked by high inflation, saw consumers spending less and businesses decreasing their ad budgets.
Further, tough competition from the abundance of social media options where businesses can run ads isn't making things easier. The result has been lower sales for companies like Meta Platforms that rely heavily on advertising. The tech-giant's revenue of $84.4 billion increased by less than 1% year over year in the first nine months of 2022.
While revenue is barely growing for the company, costs and expenses are rising much faster -- to the tune of 23.6%, to $61.9 billion in the nine months ending Sept. 30. Naturally, the result is a lower bottom line for Meta Platforms. The company's net earnings per share dropped to $6.82 for this period, down from $10.11.
Meta Platforms might continue to struggle unless it can find better ways to navigate these challenging headwinds or until economic conditions improve.
Opportunities for growth
Despite the obstacles, there are excellent reasons to remain bullish on Meta Platforms. It's difficult to ignore the company's massive user base, with 3.71 billion monthly active people (MAP) across its family of websites and apps. Meta Platforms' MAP increased by 4% year over year in the third quarter.
No matter how long it takes, the advertising industry will recover eventually, and once it does, Meta's revenue growth should pick up.
It's also worth noting that the company has yet to fully monetize some of its apps, especially WhatsApp. It's working on that very project as we speak.
CEO Mark Zuckerberg recently spoke of two monetizing opportunities that are taking shape on WhatsApp . The first is click-to-messaging ads. The feature allows businesses to communicate directly with customers via messaging threads on Facebook Messenger, WhatsApp, or Instagram Direct while running ad campaigns on Facebook or Instagram.
According to Zuckerberg, this option is one of the company's fastest-growing ad products, with a $9 billion annual run rate -- including a $1.5 billion run rate on WhatsApp, where Meta introduced the feature later than it did on Messenger. The company also introduced paid messaging on WhatsApp, a feature that it says is also growing rapidly.
Meta Platforms is still in the early innings of these monetization opportunities. In the coming years, investors should expect WhatsApp to contribute even more to the company's top line.
Meta is also looking to compete with apps like TikTok with Facebook and Instagram reels, which boast a run rate of $3 billion across both platforms.
Of course, Meta is still heavily investing in its metaverse ambitions. Although unlikely to pay off soon, they could eventually represent a massive $1 trillion opportunity. Meta Platforms' solid ecosystem would allow it to be one of the leaders in this space.
Buy while shares are down
The most important thing to remember is that Meta Platforms still has plenty of opportunities to squeeze more money out of its billions of users. The company could also make a dent in e-commerce, for instance.
That, combined with the rebound that the advertising industry will eventually experience, should give investors plenty of hope for the future. What makes the deal even better is that Meta Platforms' shares are currently looking about as attractive as they have in some time.
At current levels, investors can safely acquire shares of Meta Platforms and hold onto them for a while.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. 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. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Prosper Junior Bakiny has positions in Amazon and Meta Platforms, Inc. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Meta Platforms, Inc., and Netflix. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy .