Meta Platforms (FB), also known as Facebook, is a popular social media site with aspirations to also become a non-fungible token (NFT) platform. I am bullish on the stock. (See Analysts’ Top Stocks on TipRanks)
Without a doubt, some folks were surprised to hear founder Mark Zuckerberg recently declare that his company was re-branding into a company called Meta Platforms.
This is happening when many people still use Facebook and subsidiary social-media platform Instagram, but not everyone is happy about having their privacy data used and shared.
Also, investors might or might not approve of Facebook's seemingly sudden shift into virtual/augmented reality, also known as the metaverse.
Clearly, there's a lot to unpack here. So, let's start off with a brief glance at Meta, which appears to be currently priced at a discount.
A Quick Look at MetaAfter starting 2021 at $269, the stock embarked on a multi-month bull run.
This persisted through the end of August as all dips were very brief and shallow.
It looked like the stock was destined to break above $400 this year, but in hindsight, we now know that this probably won't happen.
In September through November, the sellers took over the price action. There was also some selling pressure in December as the share price slid to a low $300.
Currently, Meta's trailing 12-month price-to-earnings ratio is approximately 23x. That's quite reasonable for a social-media stock in 2021.
Already, we've discovered a reason to seize the moment with Meta, as it's trading at a low valuation.
Facebook Needs to Do MoreIn the interest of full disclosure, we have to acknowledge that Facebook isn't a perfect investment.
As we alluded to earlier, some users aren't pleased with how the company has used their privacy data in the past.
On top of that, it has been criticized for not doing enough to curb hate speech.
It certainly didn't help Facebook's reputation when a whistle-blower, Frances Haugen, reportedly leaked thousands of internal documents to the Wall Street Journal.
Haugen is a former product manager at Facebook. She is concerned that the platform isn't doing enough to prevent the spread of divisive content, which could harm the mental health of some young users.
"We have evidence now that Facebook has known for years that it was harming kids... How are we supposed to trust you going forward?" Haugen asked.
Before Meta can regain its footing long-term, it will need to fix its reputation.
If the company doesn't take the necessary steps to identify objectionable posts, Facebook could lose many users due to the potential public-relations nightmare.
A Wide-Moat FirmSo, now we have the bearish argument against Meta. However, it's something that the company can overcome if it takes the necessary actions.
Meanwhile, Morningstar analyst Ali Mogharabi has a more optimistic outlook on the stock.
In fact, Mogharabi asserts that the fair value for Meta/Facebook is $404.
Morningstar continues to rate Meta as "a wide-moat firm with a solid network effect and intangible assets."
Indeed, it's undeniable that the site maintains a massive and loyal following even with its reputational problems. It's also encouraging that Facebook/Meta is willing to take an early stake in the burgeoning metaverse.
"As users on Facebook and Instagram continue to grow, admittedly at decelerating rates, we expect advertisers will keep coming," Mogharabi predicted.
Regarding the company's pivot to the metaverse, Mogharabi expects monetization opportunities to come from "sales of additional virtual reality hardware and revenue sharing with merchants and content creators selling digital or physical products."
Wall Street’s TakeTurning to Wall Street, Meta has a Strong Buy consensus rating, based on 29 Buys and six Holds assigned in the past three months. The average analyst price target is $406.31, implying 27.8% upside potential.
The TakeawayMeta isn't problem-free. The site's reputation could worsen if the company doesn't take more decisive action to curb hate speech.
Yet, there's a bullish argument here as well, as the stock is trading at a very reasonable valuation.
Furthermore, Meta still has a sizable following of users, and the company's shift into the metaverse could prove to be quite lucrative in the long run.
Disclosure: At the time of publication, David Moadel did not have a position in any of the securities mentioned in this article.
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