Is Meta Platforms (META) stock a good buy?

Is Meta Platforms (META) stock a good buy?

➡️ This is a step-by-step stock review to determine if Meta Platforms (META) stock is a good buy. In this article, we’ll help you understand the company, where the company is going, the competition, and the leadership. This way you can make a more confident investment decision.

Facebook is a technology company founded in 2004 and based out of Menlo Park, CA. Although the umbrella company is known as Meta Platforms, the main social media platform, Facebook, remains the same. 

Table of Contents

Step 1: Tykr Rating

➡️ Goal: When you look at a stock, the first step is to look at the financials. Fortunately, Tykr does this for us automatically. The higher the score, the stronger the financials and the safer the investment. The higher the MOS, the higher the potential returns you can make.

  • Summary: On Sale
  • Score: 72/100
  • MOS: 79%
  • Share Price: $163
  • Sticker Price: $489

Step 2: Meta Company History

➡️ Goal: It’s important to know the company’s history. This helps us understand the various revenue streams, if they acquired other companies, how they grew through difficult times, and how they separated themselves from the competition.

  • The company was originally named TheFacebook by founders Mark Zuckerberg, Eduardo Saverin, Andrew McCollum, Dustin Moskovitz, and Chris Hughes, roommates and students at Harvard. They eventually changed the name to Facebook in 2005 and acquired the domain for $200K.
  • Facebook was originally launched to colleges and universities to create scarcity. Harvard was the first, followed by Stanford, Columbia, and Yale. By late 2004, they already reached their one-millionth user. By late 2005, the company had 2,000 colleges and 25,000 high schools throughout the US, Canada, Mexico, UK, Australia, New Zealand, and Ireland. On September 26th, 2006, Facebook opened up to everyone with the restriction that you have to be 13 years old or older.
  • In 2005, Their first investment came from Peter Thiel who invested $500,000 fora  10.2% share in the company. Thiel co-founded PayPal and Palantir. His VC firm, Founders Found, has invested in other businesses including Stripe, Airbnb, Spacex, Spotify, Twilio, Lyft, Asana, Oculus, and more. 
  • In 2007, Facebook launched Facebook Ads, the revenue engine that has helped turn the social network into a highly profitable global enterprise.
  • In 2009, the “like” button was introduced as a “thumbs up” icon. This allowed users to quickly interact with status updates, comments, photos, and videos. Once clicked, the platform would present similar content to the user. This feature, although small and simple, increased the daily active users. As content became tailored to the users’ interests, it caused users to keep coming back more frequently.
  • In February of 2012, the company went public at about $38 per share. The share price eventually went down to $22 per share by September and finally broke out past $40 in August of 2013. This shows that even popular tech stock IPOs can have a very slow start. By October of 2015 the stock finally broke out past $100 per share. 
  • In October of 2021, Facebook changed its name to Meta Platforms as it shifted to build a metaverse. The name change did not affect the name of the Facebook social networking platform, instead, it’s an umbrella name similar to Alphabet and Google. Alphabet is the umbrella and Google is the platform.
  • In November of 2021, Facebook stated it would stop targeting ads based on data related to health, race, ethnicity, politics, religion, and sexual orientation.
  • In February of 2022, DAUs (Daily Active Users) dropped for the first time in the company’s 18-year history. DAUs dropped to 1.929B users from 1.930B users. The reason is, that more consumers are turning away from Facebook and using TikTok and YouTube.

Step 3: Meta Business Model

How does Facebook make money?

➡️ Goal: It’s important to know how a company makes money. A mature business model has multiple streams of revenue which allow the company to weather downturns in the economy.

Facebook generates primarily all of its revenue through advertising. Those of you who know me, know that I love both B2C and B2B SaaS (Software as a Service). Recurring revenue with no supply chain or inventory costs. Highly scalable and highly lucrative. There are two other business models that I consider to be even more scalable.

1) Transaction fees: Businesses like PayPal, Square, and Adyen charge small fees for every transaction. The fees are low friction meaning they rarely contended. In other words, most people pay the fees without making a fuss or asking for fees to be removed. The more transactions consumers make, the more money these companies generate. Although SaaS is a set monthly or yearly fee, transaction fees have no limit. The transactions can keep growing with no end in sight.

2) Advertising: Google and Facebook generate significant revenue through advertising. Similar to the transaction fee business model, there is no limit to the amount of money businesses will spend to place their ads in front of consumers. And, the more businesses compete for ad space, the higher the ad costs. The challenge is, that creating a platform with a massive audience like Google or Facebook is extremely difficult.

Although advertising is the primary revenue generator, Facebook has acquired other business models that either enhance or expand the social network itself or diversify to other revenue channels.

Here is a list of Facebook’s most popular acquisitions. A more detailed list may be found here.

  • 2009 – FriendFeed – A social media platform and news aggregator
  • 2010 – Octazen Solutions – A Malaysian contact-importing startup
  • 2010 – Divvyshot – A photo-sharing platform
  • 2012 – Instagram – A photo-sharing platform
  • 2013 – Storylane – A blog-sharing platform
  • 2013 – Onavo – An Israeli analytics company
  • 2014 – WhatsApp – An instant messaging application
  • 2014 – Oculus – A VR (virtual reality) company
  • 2020 – Acquired 9.9% share in Jio – A Indian telecommunications company
  • 2020 – Kustomer – A CRM platform
  • 2021 – Downpour Interactive – VR video game company
  • 2021 – Unit 2 Games – A video game company
  • 2021 – BigBox VR – A VR multiplayer game company
  • 2021 – AI.Reverie – A synthetic data company.
  • 2021 – Within – VR fitness app

Step 4: Meta News

➡️ Goal: It’s important to highlight important company-specific news as well as industry-specific news over the last month and year. We don’t need daily news on a company to make buy or sell decisions because we’re investors, not traders. Overall, we want sufficient news to understand where a company and industry are heading over the next year or few years.

This article from states that Facebook is canceling a contract with ABM Industries, an office management company. Over 368 workers including kitchen cleaners, night cleaners, recycling sorters, and cafe support, are losing their jobs. Facebook said its revenue is slowing down due to rising inflation, the war on Ukraine, and privacy changes to Apple’s IOS.

This article from talks more about Apple’s IOS and the impact it has on Facebook. The new IOS update includes an ATT (App Tracking Transparency) feature, which reduced the targeting capabilities by limiting advertisers from accessing an iPhone user identifier. ATT consists of popups that ask users whether they want to be tracked when opening an app. If the user says no, the app developer can no longer access the IDFA (Identifier for Advertisers), a device ID that’s used to target and measure the effectiveness of online ads. A study from ad measurement firm AppsFlyer discovered that 62% of iPhone users were choosing to opt-out of sharing their IDFA. Facebook CFO, Dave Wehner, said this IOS feature could decrease the company’s revenue by $10B in 2022. In 2021, Facebook generated $117B in revenue. This means revenue could decrease by 8.5% which is substantial. 

This article from stated that analysts from Needham, an equity research and investment bank, downgraded the stock from “hold” to “underperform”. They believe cost growth will outpace revenue growth over the next 2 years. Revenue in the most recent quarter went from $33B down to $27B, an 18% decline which is substantial. 

This video from Eric Sheridan at Goldman Sachs did address the cost issues. If revenues are declining, Facebook does indeed need to cut costs to maintain profitability for the long term. He also mentioned that Apple’s IOS change has created some headwinds for the company’s growth. Although there is negative news on the stock, he still believes this stock can be a long-term hold but investors need to reset expectations that revenue growth and share price growth may not be as big in the future, as it was in the past.

This article from lists 5 stocks with buy ratings including DIS, ABNB, CHGG, NFLX, and META. Rising inflation and the conflict between Russia and Ukraine has stirred a lot of fear in the market which has caused inexperienced investors to run from the stock market. As stated in the article “It may be challenging to buy stocks during a crashing market, but it can potentially provide some of the best rewards.”

This article from states that TikTok and Apple have become bigger threats to Facebook ad revenue model. Apple’s advertising business, which includes its app store ad placements, has grown to about $7 billion, while TikTok is on pace to grow its advertising revenue from $4 billion to more than $12 billion this year. Both companies are taking market share away from Facebook.

This article from talks about Sheryl Sandberg, COO of Meta, resigning after 14 years at the company. As she states “It was time to write the next chapter of my life.” To summarize her success with Facebook, Zuckerberg poached her from Google in 2008, to grow Facebook’s ad business and she did so with enormous success. 97% of Facebook’s 2021 revenue came from ads alone.

This article from states that around 80% of those surveyed said they found the metaverse to be a much more inclusive place than their real lives. Another 79% said they appreciated that friends in the metaverse tend to like them for who they are rather than their physical appearance. “In the physical world, we have to conform to our environment, but in the metaverse, the environment conforms to us.” There are concerns that the metaverse will lead to further alienation and social dysfunction but based on surveys, social interaction is one of the main draws of the metaverse. 

This article from says that Bloomberg is projecting the metaverse to hit $800B by 2024 and eventually $8T in the coming years. For example, if you bought virtual property in the last few months, the value in some cases has increased by 500%. In the real world, property increases like this are highly unlikely.

Step 5: Meta Competition

➡️ Goal: It’s important to understand who the competitors are and how their financials rank against this company. Try to find 5 other competitors to rank against based on Score. The best way to find competitors is to Google “XYZ competition” and replace XYZ with the company name. You can also go to Tykr and click on the “Similar Stocks” tab on each stock to see similar companies in the same industry.

Alphabet (GOOGL)

  • Summary: On Sale
  • Score: 83/20
  • MOS: 90%
  • Share Price: $2,280
  • Sticker Price: $11,462
  • Revenue: $257B

Apple (AAPL)

  • Summary: On Sale
  • Score: 67/20
  • MOS: 89%
  • Share Price: $145
  • Sticker Price: $667
  • Revenue: $365B

Twitter (TWTR)

  • Summary: Overpriced
  • Score: 39/20
  • MOS: 0%
  • Share Price: $34
  • Sticker Price: $34
  • Revenue: $5B

Pinterest (PINS)

  • Summary: On Sale
  • Score: 72/20
  • MOS: 90%
  • Share Price: $18
  • Sticker Price: $92
  • Revenue: $2B

Facebook’s biggest competitors from a platform standpoint include Google, YouTube, TikTok (private company), and Apple’s App Store. 

Step 6: Facebook 4Ms

➡️ Goal: All of our homework on this company leads up to the 4M checklist. A lot of investors only look at the numbers. Yes, it’s important to look at the first M (MOS) which is the math part of investing but it’s also important to look past the numbers and also look at the business, the competition, and the management. If all 4Ms pass, we should have high confidence in buying this stock.

✅ MOS: The score of 72/100 and MOS of 79% show that Facebook is still a financially strong company. Although quarterly revenue and net income have declined, the annual revenue and net income are still increasing. 

✅ Meaning: As mentioned earlier, the ad revenue business model is highly scalable and lucrative. If you can create a free social platform, the best way to generate revenue is to empower businesses to sell ads. It’s also important to point out that Facebook has a strong emphasis on the “buy before build” philosophy of scale. Most large public companies will buy other companies to scale faster as opposed to building it themselves. This is how you properly scale a company. Some of the acquisitions they’ve made in the past, including Instagram, have proven to be wise investments. The problem with Facebook’s ad revenue models comes from Apple. The new IOS ATT feature will cause Facebook’s revenue to decline about $10B in one year. This is a major hit.

✅ Moat: This is where the big problem falls. Google, YouTube, TikTok, and the Apple Store are taking market share away from Facebook. The first DAU decline in 18 years is a major red flag. It’s also important to point out that TikTok doubled its worldwide user base between 2019 and 2021, going from 291 million users to 655 million users.

✅ Management: Losing Sheryl Sandberg as COO is a loss worth noting. Mark Zuckerberg said that Sandberg has the ability to balance business strategy with professional relationships. She has a unique combination of high IQ (intellegence quotient) and EQ (emotional quotient). As he states “If you get someone who’s great at strategy or great at product and they’re not a great manager, that’s great. If you can have someone who’s excellent at one of those things, you hire them every day. I think it’s just exceptionally rare to find people who spike in both of those areas.” 

I also just finished the book, Radical Candor, by Kim Scott who served in executive roles at Apple and along side Sheryl at Google. Kim mentioned that Sheryl was indeed a good leader. In fact, there was a particular situation where Kim was facing a personal challenge at home and Sheryl instructed Kim to take as much time off as she needed, without using PTO. When your top performers are distracted, in this case Kim being a well recognized asset to the team, it’s best to give them time off as opposed to letting them operate at 50% efficiency. This leadership move by Sheryl allowed Kim to take a step back, stop worrying about work, resolve matters at home, and come back rejuvenated. Naturally, your not-so-top performers will abuse non-PTO time off as a form of a vacation. That’s why strong leaders like Sheryl have already identified who’s an “A” player and who’s not. 

Now turning back to Zuckerberg, can he lead his employees, customers, and users into the metaverse alone or will another executive step up to lead the charge like Sheryl did with the ad revenue model? The metaverse is an unknown territory for all of us. We’re about to learn a lot in the coming years. 

Step 7: Is Meta Platforms (Meta) stock a good buy?

Although I respect the strong financials and the advertising revenue model, the biggest issue is the moat. Google, Youtube, TikTok, and Apple are all taking market share away from Facebook. I still believe Facebook will generate positive returns over the coming years but probably not as big of returns year over year as the stock has delivered in the past. When the market turns around after this bear market / recession recovers, Facebook will most likely deliver some impressive returns. However, it may not be a long term hold. If you do plan on holding for the long term, make sure you use Tykr to monitor when the stock changes from On Sale to Overpriced. If and when those financials change for the worse, that’s the time to get out because large institutions won’t be far behind.

On a personal note, I don’t love social media. Yes, it has allowed people to connect form around the world but unfortunately it has caused a lot of drama and a lot of pain. If you haven’t seen The Social Delemma, it’s worth a watch as it touches on the issues around social media.

The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.

If you found this stock review interesting, you may also like this review on Google.