Savvy investors have undoubtedly been following the rise of Meta Platforms ( FB 1.02% ). Starting in a college dorm room, the company formerly known as Facebook has grown to reach billions of daily active users. That massive user base is one of at least three factors intelligent investors pay attention to when evaluating Meta Platforms.
The name change resulted from significant investment and a change of focus from social media to the metaverse. It’s uncertain how big an effect changes in privacy controls had on the decision to invest in the metaverse. Let’s look closer at each of the three factors mentioned above.
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1. Massive user totals
As of Dec. 31, Meta boasted 2.82 billion daily active users across its family of apps, including Facebook, Instagram, WhatsApp, and Messenger. That was an increase of 8% from the previous year. Investors are indeed taking note of continuous growth despite the large size.
As you may already know, Meta’s social media apps are free to join and use. The company makes money by showing advertisements to folks browsing the internet applications. As a result, user totals are crucial to its success. Marketers covet the ability to access nearly half of the planet daily through Meta. Indeed, revenue boomed by 37% to $118 billion for Meta in 2021.
2. Investing in the metaverse
The company changed its name from Facebook to Meta to reflect the changing focus of the business. In a founder’s letter on Oct. 28, CEO Mark Zuckerberg had this to say about the transition:
The next platform will be even more immersive — an embodied internet where you’re in the experience, not just looking at it. We call this the metaverse, and it will touch every product we build. The defining quality of the metaverse will be a feeling of presence — like you are right there with another person or in another place. Feeling truly present with another person is the ultimate dream of social technology. That is why we are focused on building this.
It is unclear how this shift will affect revenue and profits, but theoretically, a more engaging and realistic service should increase customer adoption and time spent. Nevertheless, investors view the move as increasing uncertainty, which is rarely good for a stock‘s value.
3. Headwinds from privacy changes and competition
In the previous decade, Meta has grown revenue at a compound annual rate of 41.3%. Therefore, you can understand the investor concern when management guided investors to look for it to increase revenue by 7% at the midpoint for 2022. The slowdown is attributed to rising competition and privacy changes from Apple.
Folks have growing options on what to do with their leisure time, and apparently, they are spending less of it on Meta Platforms. There is now a range of free social media apps, short-form video sites, and other low-cost ways consumers can entertain themselves. The aggregate is finally taking a toll on Meta’s dominance.
Furthermore, Apple’s privacy changes make it more difficult for Meta to track user activity. That makes it harder for it to sell targeted advertising to its marketing partners. Less precision results in lower prices received for ads shown and looks to be a long-run headwind for Meta Platforms.
The three factors mentioned above are largely what smart investors are watching right now. It is not meant to be a comprehensive list, but an approximation of what is taking a meaningful role in the decision to buy or sell Meta Platforms stock.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.