don’t go ‘bargain hunting in Meta Platforms Inc

Meta Platforms Inc (NASDAQ: META) down over 50% year-to-date is hardly an opportunity worth exploring, says Paul Meeks. He’s a Portfolio Manager at Independent Solutions.

Both advertising and metaverse look unappealing

Formerly known as Facebook, the mega-cap technology name generates about 97% of its revenue from advertising, which tends to be the first expenditure that’s cut in an economic downturn.

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Since Meeks does not expect “recession” to be a short-lived phenomenon, he, therefore, sees continued struggle for the ad-focused Meta Platforms Inc. But there’s more to why he doesn’t like this stock at the current historically low valuation.

The company is going through a metamorphosis. What is the metaverse and once we get to the other side, what is this company’s position in it. It may not necessarily be the dominant player. So, there’s some wrenching changes.

Meta to take a big hit on earnings this year

Interestingly, the rest of the FAANG stocks have recovered significantly from their June lows. Meta, on the other hand, is still trading near the bottom after reporting its first-ever year-on-year decline in quarterly revenue last month.

Commenting on its valuation, however, Meeks said on CNBC’s “Squawk Box”:

EPS this year is going to decline by 40% and the stock is trading at about 18 times earnings. So, even given the fact that it’s still the weakest among the FAANG, I don’t know if it’s an opportunity yet to go bargain hunting in this name.

Also on Friday, Morgan Stanley lowered its price target on Meta Platforms citing slower monetisation at “Reels” and declining engagement at large.