Meta Platforms Stock Up 13% Today – Time to Buy FB Stock?

The price of Meta Platforms stock is surging nearly 13% this morning in early stock trading action following the release of the company’s financial results covering the first quarter of the 2022 fiscal year as the parent company of Facebook and Instagram reported better-than-expected earnings during the period.

For the three months ended on 31 March, the company headed by Mark Zuckerberg reported total revenues of $27.9 billion resulting in a 7% year-on-year jump. This is the first time that Meta reports single-digit top-line growth since it started disclosing its financial results to the public.

Family daily active users – an operating metric that recollects Meta’s user activity within its family of apps – jumped 6% to 2.87 billion on average while Facebook daily active users (DAUs) increased 4% compared to a year ago at 1.96 billion.

Ad impressions – another key performance metric – advanced 15% across the three apps owned by Meta but the average price per ad dropped by 8% during the period. The company attributed this negative operating performance to the privacy control features introduced by Apple (AAPL) in its iOS operating system.

Operating income during the period stood at $8.52 billion resulting in a 25% decline compared to the previous year. This resulted in a 1,200 basis points drop in the firm’s operating margin, which landed at 31%.

Finally, net income retreated 21% and earnings per share on a fully diluted basis came in 18% lower at $2.72. However, they exceeded analysts’ consensus estimate for the period by around 17 cents.

Meta’s operating expenditures have increased compared to a year ago amid its investments in the Reality Labs unit – a segment of the company that is in charge of developing a virtual reality interface known as the “metaverse”

As a result, Meta’s headcount increased 28% compared to Q1 2021 as the company added 5,800 new people to its payroll while research and development expenditures grew 48% on a year-on-year basis as well.

For the upcoming second quarter of the 2022 fiscal year, the company expects to produce revenues ranging from $28 to $30 billion. If the upper bound of that estimate is hit, Meta will manage to grow its revenues by only 3% compared to the same period a year ago – possibly the lowest year-on-year top-line growth the firm has reported in its history.

The fact that the firm’s profitability came in slightly better than expected is possibly the reason why Meta stock is s surging this morning.

What could be expected from this metaverse stock following the release of its Q1 2021 financial report? In this article, I’ll be assessing the price action and fundamentals of Meta Platforms stock to outline plausible scenarios for the future.

67% of all retail investor accounts lose money when trading CFDs with this provider.

Meta Platforms Stock – Technical Analysis

The price of Meta stock has been on a sharp downtrend since September last year but the decline accentuated lately as a result of a confluence of multiple negative catalysts.

First of all, the company’s pivot toward the metaverse was not perceived as positive by market participants in the short term as investors have to tolerate an increase in capital expenditures and lower profitability until this branch of the business starts to produce money.

Moreover, the introduction of privacy control features in Apple’s mobile operating system was also interpreted as a negative development for the firm as ad targeting could deteriorate and that would have a direct impact on the firm’s revenue-generation capacity.

In addition, external variables including an expected shift in macroeconomic conditions in the form of higher interest rates introduced by major central banks to contain the advance of inflation and the uncertainty related to the war between Russia and Ukraine contributed to a surge in risk premiums and a subsequent decline in equity valuations.

As a result, Meta Platforms (FB) stock is accumulating a 41% decline since the year started despite today’s uptick. Moreover, the stock is also trading almost 49% below its 52-week high and 35% below its 200-day simple moving average.

A falling wedge pattern appears to be in play at the moment for FB stock and today’s surge is not yet leading to a break above that formation. If this relatively positive earnings report fails to push Meta stock above the upper bound of the wedge, chances are that this will just be a short-lived rally.

Momentum indicators keep favoring a bearish near-term outlook as the Relative Strength Index (RSI) is standing at 46 while the MACD is neck-deep into negative territory and below the signal line.

Meta Platforms Stock – Fundamental Analysis

Most of the recent decline experienced by Meta Platforms stock comes amid an expected deterioration of the firm’s earnings and cash-flow generation capacity in the near term due to its ongoing investments in the development of the metaverse.

At the moment this is written, FB is trading at just 14 times its forecasted earnings per share for 2022 and 12x its forecasted EPS for 2023.

These multiples are low and could be relatively attractive for long-term investors as long as the company manages to turn these investments on the metaverse into higher profitability in the not so distant future.

Meta Platforms remains a highly profitable enterprise with a healthy balance sheet and a solid cash flow generation capacity. Meanwhile, its leadership team has proven its capacity to execute the company’s ambitious plans and that gives them the benefit of the doubt when it comes to this idea of becoming the leading player in an up-and-coming industry.

Finally, some of Meta’s assets remain largely unmonetized. If that changes, that could turn the tables for Meta’s financial performance in the short term. The best example of this is WhatsApp – the messaging app used by billions that currently produces zero revenues for the firm.

All things considered, this could be a once-in-a-lifetime opportunity to buy a high-quality tech stock at a point when the market is being overly pessimistic about the future.

Buy FB Stock at eToro with 0% Commission Now!