Facebook is the largest social networking site in the world with more than 2.9 billion active users while Instagram is the biggest photo-sharing social networking service with over 2 billion active users across the world. Both platforms are owned by Meta Platforms or Meta alongside instant messaging apps Messenger and WhatsApp. The expansive user base of its products has made Meta one of the most valuable companies in the world and has also made it one of the ten largest publicly traded companies in the United States. This article explores and describes the pros and cons or advantages and disadvantages of investing in Meta stock.
Investing in Meta Platforms: Understanding the Upsides and Downsides for Stock Investors
Pros: Advantages of Meta Stock
Meta has succeeded in revolutionizing how people communicate and interact through the internet by building a global social network using different communication platforms. The sheer number of individuals using its platforms corresponds to one of the largest audiences for revenue-generating digital advertisements.
It has also succeeded in determining trends and even spearheading newer trends concerning internet usage and digital content consumption. This has been demonstrated through features such as Facebook Live, which has been a popular tool for broadcasting videos, and Instagram Stories, which has changed photo-sharing and video-sharing behaviors online.
The existing user base of Meta and the popularity of platforms such as Facebook and Instagram have made it one of the five tech companies in the United States, alongside Alphabet, Amazon, Apple, and Microsoft. This also means that it is one of the popular companies to invest in. The following are the advantages of investing in Meta stock:
• Advantages of Large-Cap Stock: Meta is a large-cap stock. This translates to several advantages which include significant stability and security compared to mid-cap and small-cap companies, established management capabilities, availability of market information, and lower liquidity risk.
• Favorable Price-to-Earnings Ratio: The stock of this company has become more affordable relative to its earnings. A comparison of its forward price-to-earnings ratio to other tech companies would reveal that its stock price is cheap.
• Long-Term Growth Prospects: It still generates earnings primarily from advertising revenues coursed through its social media platforms. Its investments in the metaverse, artificial intelligence, and other next-generation technologies can provide long-term growth and revenue-boosting potential.
• Keeping and Expanding Its User Base: Another advantage of Meta stock is its continuous efforts to keep and expand further the user bases of its social media platforms through the introduction of new features that follow market trends.
• Strong Financial Performance: The company also has strong financials. It has a huge cash flow and a remarkable balance sheet. Its net profit margin in December 2022 was 19.9 percent. It has a strong historical profit margin and its profitability metrics have also been positive or have received a profitability grade designation.
Cons: Disadvantages of Meta Stock
Meta might be popular as far as the usage of its products is concerned but it has faced several controversies and has struggled with internal and external issues. The company has been criticized for data privacy breaches. It has also been dealing with regulatory risks from regulators and lawmakers in different parts of the world.
Facebook has been scrutinized for its failure to stop the spread of misinformation and its alleged role in election interference while Instagram has been blasted for its negative impact on the mental health and well-being of its users. Take note that social media has been blamed for promoting unrealistic images of individuals.
Competition is also tough. Newer social media platforms have been emerging. Novel trends are also threatening the existing features and functionalities of existing social networking sites. These developments run the risk of Meta losing its user base or rendering its platforms irrelevant. The following are the specific disadvantages of Meta stock:
• Cyclical Nature of Its Earnings: Meta is not a cyclical stock but its main source of earnings, which is advertising, is cyclical. Ad spendings depend on the boom and bust phases of the economic cycle. This means that companies like Meta would earn less during periods of economic downturns and recessions.
• Dependence on Main Revenue Stream: It is still important to underscore the fact that this company remains dependent on ad revenues. Investors should be aware that the value of their investments would decrease during economic setbacks.
• Impacts of Competitive Forces: The bargaining power of internet users has increased due to the presence of different communication platforms. Twitter, TikTok, Telegram, and Viber are some of the top competitors of Meta products. Competition compels the company to invest heavily in research and development.
• Regulatory Scrutiny and Issues: Another disadvantage of Meta stock centers on the regulatory risks and uncertainties attached to its core business. Regulations can affect the reach, user base, and relevance of its products.
