There's a lot of bearishness around Meta right now, and bearish market conditions going into next week. A lot of fair concerns with the company as far as smartphone ad restrictions, slowing growth and overinvestment into the metaverse. Hence analysts project an abysmal 2.51 EPS, would be a 35% decline QoQ. I think there's a case to be made this thing has overshot to the downside. Down another 15% just in the past 3 days on a market downturn/NFLX scare.
If you look at FB's past earnings and the fundamentals, things look perfectly okay. Last earnings weren't great for a few reasons but not bad either, their revenue and Monthly Active Users made all-time highs. But the big news was that Daily Active Users declined for the first time, from 1.93m to 1.929m.. Yep, a QoQ decrease of 0.05% and the stock dumps $237 billion of market cap in the most cataclysmic fashion possible.
Now here we are trading at a P/E ratio of 13.63. That is rock bottom for a profitable tech stock which puts up consistent earnings and also has plenty of avenues for growth even if the metaverse endeavor falls flat. At this multiple I'm inclined to believe the concerns are overblown for the future of this company. Even in the depths of the 2008 recession, ad spending only went down 13%. Wouldn't necessarily expect that again, and ad spend is still rotating away from traditional media. All indications say ad spend is fine in Q1 2022, at least.
Here's a rarely mentioned fact, India is FB's largest democratic with roughly 329m monthly active users vs. 179m in the US. So FB has all this selling pressure from recession concerns, when India is the fastest growing major economy in the world. May face headwinds from global downturn, sure. But nice to see the INDA (India ETF) holding up really well atm, just as another data point. Also, FB has little to no headwinds as far as supply chains or inflation like other names. They're positioned well going into an economic downturn. Another fun fact, people tend to value their relationships more when money is tight, and spend more time socializing. Also more time at home. FB could perform well in this environment.
So overall, could we miss the already terrible 2.51 EPS projection and dump more? I guess, but we have a major trendline at $160. Would be very surprised if it dumped beyond there even on bad earnings. How much more do you want it to dump at this multiple? For reference, NFLX was at a 31 P/E ratio before earnings, now 19. FB at 13.63? Hard to see a lot of downside, it's not a utility stock.. It still has some growth potential, but basically all of that has been priced out now. Already trading well below the P/E ratio of SPY at 21 and QQQ at 28. Lots of upside potential, limited downside. Below $160 is concerning in the short-term.
So for all you FB bears out there, can you find me another large cap stock like this with global growth potential trading at a P/E less than 14? Or any profitable large cap tech stock? Please show me how wrong I am that this stock is underpriced. I'm always open to see more data or learn something new.
I'm in a small call option lotto play for earnings, $235 5/6.
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