Meta Platforms' plummeting stock: Is it a buy?

Sure, some of the company's headwinds may be worse than expected. But the stock's big drop may more than compensate for any incremental risk.

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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

With Meta Platforms (NASDAQ: FB) stock getting hammered today following its fourth-quarter earnings report, many investors may be wondering if this a good opportunity to buy shares of the Facebook parent company.

To decide whether Meta stock is worth a closer look after its decline, let's assess the reason behind the stock's move and whether the reason truly justified this big of a pullback.

Getting to the root of the problem

The main reason for the tech stock's sharp decline on Thursday is management's guidance for first-quarter revenue growth to slow significantly. The company guided for first-quarter revenue to grow just 3% to 11% year over year to between $27 billion and $29 billion. Analysts, on average, were expecting guidance for $30 billion.

"We expect our year-over-year growth in the first quarter to be impacted by headwinds to both [ad] impression and price growth," said Meta CFO Dave Wehner in the company's fourth-quarter earnings call. Specifically, the company expects continued challenges related to advertising measurement and targeting related to Apple's recent iOS changes. Other headwinds include lower monetization rates of new social media products like Facebook's TikTok-like Reels, foreign exchange rates, and supply chain disruptions that have impacted some advertiser budgets.

A buying opportunity?

These are some formidable issues. But Meta does think that over a "multiyear" period it can rebuild its ad optimization systems "to drive performance while we're using less data," according to comments from management in its fourth-quarter earnings call. Moreover, this isn't the first time Meta has faced advertising headwinds early in a social product's lifecycle.

"Right now, Reels monetizes at a lower rate than feed and Stories, but we expect this to improve over time," explained Meta Chief Operating Officer Sheryl Sandberg. "We've made successful transitions before, the shift from web to mobile and then another shift from feed to Stories. We have a playbook here."

So not only does Meta appear well positioned to eventually overcome these challenges, but investors now get an opportunity to buy the stock at just 17 times earnings. These headwinds definitely lead to new risks and narratives that investors will have to watch closely, but the stock's cheaper valuation after its decline may more than compensate for these new risks. 

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Daniel Sparks owns Apple. His clients may own shares of the companies mentioned. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Apple and Meta Platforms, Inc. The Motley Fool Australia's parent company Motley Fool Holdings Inc. recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool Australia has recommended Apple and Meta Platforms, Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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