wHY I bought THE DIP ON META (facebook)
Bet on META
Facebook, whose parent company is META given the recent rebrand, is the company everyone loves to HATE.
With that as the background, you can see why the turmoil last week gave such joy to so many people out there.
The turmoil being META’s market capitalization falling by 26% in just one day!
Erasing $240 billion or 25% of value in one day.
To put this into perspective, this collapse was the largest single day market drop in HISTORY for a US publicly traded company!
Mark Zuckerberg himself who owns 14% of the stock lost $29 billion dollars personally…in 24 hours!
Imagine going to bed trying to sleep after losing $29 billion…..
So what actually caused it?
….and is this a sign of more pain to come for META.
Well to simply lay it out, Facebook the social media platform is losing popularity.
In their latest earnings report, which covered the final quarter of 2021 along with guidance on their future earnings.
Facebook states that it was losing daily users overall on the platform for the first time ever!
This was the first drop in its 18-year history.
To give some context, the writing has been on the wall for a while.
From growing up in Europe, this change began to happen back in 2018. Western users from Europe and America were leaving the social media site at worrying numbers.
But this was more than offset by the acceleration of growth in new users joining the social media site from developing countries.
Areas such as Africa, India and Latin America were joining in huge numbers.
But now those same developing countries are also starting to leave the platform.
Zuckerberg and META’s earnings report put this down to losing people’s attention and time to rivals such as Tiktok. Who have gripped a hold on the social media video market and dominate developed and developing nations.
Millennials and Gen Z’ers in developing markets now go straight to TikTok, not Facebook as before.
And the perspectives of Facebook from Western countries is deteriorating, now seen as a destination for OAP’s and book club groups.
So has Facebook as a social media platform reached its peak?
Facebook is now mainly attracting users for its Messenger app, Facebook Groups and Events along with Marketplace.
This is eating into Facebook’s primary source of revenue which is ads.
Facebook’s whole Revenue model is based on ads – which Zuckerberg stated during his now infamous Congress hearing.
The biggest source of Revenue from ads is actually from the Facebook home page, and users are no longer spending time on their home page.
Scrolling the home page is a thing of the past.
Couple this with Apple’s IOS changes made last year which makes it more difficult for apps like Facebook to track IPhone users’ habits and digital behavior.
This has massively impacted its ad business. Resulting in it being more difficult to target users with ads for products and services they might be interested in.
In short META missed earnings in Q4 2021, and going forward isn’t going to make as much money from Facebook as forecast.
The market reacted badly, very badly.
As always the market hates uncertainty and surprises. Wall Street was surprised by the news, which resulted in the biggest one day collapse in history.
Of the 52 analysts who covered META on wall street, 42 of them had either buy or market outperform ratings for the stock!
This is why I take analysts ratings with a pinch of salt…always do your own research.
Surprised was an understatement.
The long saga of lawsuits and pressure from Congress and Regulators over the harm Facebook and Instagram does to young teens is further impacting the stock price.
So why did I buy the Dip?
As I always preach, I am a long term investor and primarily invest in broad based low cost index funds.
Dollar cost averaging every month.
A portion of my portfolio I put into diversified single stocks which again I hold for the long term.
I see this as an opportune time to buy shares of META and hold for the long term.
I’m betting on the future of META and the direction it is heading in, which includes its pivot to the Metaverse.
I also think the market overreacted, similarly to when Netflix dropped over 20% in one day.
Facebook is still one of the biggest ad platforms in the world, and ads aren’t going away any time soon.
Just like my favourite Shark Tank investor Kevin O’Leary, I’ve bought the Dip.
Facebook can compete with TikTok, its focusing further on its short video format REELS, which will bring in more users and take attention back from TikTok.
Also its other big drivers of ad Revenue, namely Whatsapp and Instagram are still adding users and growing.
My prediction is this stock market cash was a market overreaction and most likely bounce back over the short term, while continuing to grow over the long term with the pivot to the Metaverse.
And the market for the Metaverse is accelerating fast now, there is Revenue to capture.
In fact in 2021 Real Estate sales alone in the Metaverse exceeded $500M, and is expected to double in 2022.
META is in the driving seat to capture this.
META’s own segment of business called Metaverse Ventures is investing heavily in this space. Although it is hemorrhaging money, having lost the company $8.3 billion dollars in 2021, while Oculus Quest headset losing $3.3 billion in just one quarter.
But what people don’t focus on is:
- META’s Revenue has grown 37% in one year from 2020 to 2021(from $86B to $118B)
- It has a treasure trove of cash on board to continue to invest – $48B in cash and cash equivalents
- Most of its core apps are still accelerating in number of users, including Instagram and Whatsapp
- It’s focusing on REELS, to compete with TikTok
- It’s a leader in all things Metaverse and is investing heavily in talent and infrastructure in this space, which I see as a huge long term growth area and META taking a big slice of this growing pie
- Virtual Reality hardware is growing, Oculus Rift recently hitting $900MM of Revenue and accelerating
- Facebook is still one of the biggest ad platforms in the world
- The stock has dropped 35% in value since last June despite all of the above.
Also contributing to the sell off is the wider macro view where the US economy is.
GDP growth is predicted at just of 0.1%.
The US recently crossed 30 trillion of debt for the first time in history, along with inflation rising to record highs.
People are quitting their jobs en masse – I was one of those having recently quit my 200k Strategy Consulting job.
….and Jerome Powell is raising interest rates.
The wider market and investors are questioning is now the best time to put money in speculative stocks – which META is still seen as.
I disagree with this, Facebook has been around for 19 years now and its Revenue is continuing to accelerate every year.
So I bought the dip!
I increased my holdings to $28,000 and expect to add to this over the coming year.
Last year META was worth 1 trillion dollars, and I not only expect it to return to this market cap, but blaze past it.
Let me know your thoughts on META and Facebook , do you think this is just a bit of market noise or a sign of more worrying things to come?
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Appreciate you making it to the end! Have an awesome weekend.