The 3 Reasons Why Meta Is A Dangerous Value Trap

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The 3 Reasons Why Meta Is A Dangerous Value Trap

Seeking Alpha2022-02-08

SummaryIt is not unlikely that Meta's DAU will decrease in 2022.It is rather likely that Meta's Average Revenue Per User will decrease in 2022.It is almost certain that Meta's Metaverse loss will ...

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Mm101
·2022-02-09
Ff
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Mm101
·2022-02-09
Ff
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flyuphigh
·2022-02-08
Old and Dangerous 👴🏼 🌚
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RoaringTiger
·2022-02-08
The current Meta current platforms are hitting a plateau especially privacy concerns are growing. It remains to be seen how metaverse will turn out and it'll years before it'll bear any fruit. The silver lining is Meta has always responded to the situations promptly and we shall see how they'll navigate through this.
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Prokuan
·2022-02-08
Overvaluation
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gupzbajaj
·2022-02-08
Way too much publicity
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risk/reward ratio is currently not attractive.Georgijevic/E+ via Getty ImagesYou might have heard that Meta Platforms (FB) has seen its stock drop by over 25% since releasing Q4 earnings.Now, a great many analysts believe the crash to be a severe overreaction, creating a unique buy-opportunity for those who are brave enough to stand some short-term volatility.I disagree. There are at least 3 reasons that could make Meta Platforms' stock underperform rather significantly in 2022.1. Fewer usersIt is not unreasonable to expect Meta's daily active users (DAU) to decline in 2022. Certainly not as unreasonable as many believe it to be.For long, competition with other social media platforms was a nonissue. Early on, as Instagram became too much of a threat, Facebook just acquired it,to neutralize its rival. Two years later, it repeated this trick by acquiring Whatsapp for the same reason. However, increased regulatory scrutiny since, has made it almost impossible to neutralize further threats. After scaling for a few years, competition has arrived. And it is here to remain.For example: Snapchat (SNAP),which turned down two offers of Meta, reached 319 Million DAU in Q4; Pinterest reached 432 Million DAU, while Tiktok is reported to have reached more than 1 Billion Monthly Active Users in 2021 (although this includes China), and more than 100 Million Monthly Active Users in the US. But also Meta's communication apps, Messenger & Whatsapp, are threatened:Telegram now has over 55 Million Daily Active Users. Moreover, 'Facebook groups' has largely been replaced by Reddit, YouTube (GOOG) is increasingly becoming a social platform, just as Linkedin (MSFT).Therefore, Meta's family of apps is slowly but surely losing its addictiveness, as alternatives are gaining traction and becoming omnipresent. Although the \"death of Facebook\" has been wrongly predicted many times in the past, DAU numbers have finally caught up with this sentiment:Source: StatistaI believe this trend is unlikely to change. The recent popularity of Tiktok and the ever-increasing popularity of YouTube keep pulling users towards both video-based platforms, away from Meta's Facebook and Instagram. Instagram Reels, basically a copy of Tiktok but worse, will be unable to change that course.Meta has guided for 3-11% revenue growth in Q1 2022, as DAU in Q1 2021 was lower than in the other 3 quarters of 2021. Hence, if DAU in Q1 2022 remains unchanged relative to Q4 2021, there will indeed be some minor growth. This does not mean, however, that growth can be expected in the other 3 quarters.2. A decrease in average revenue per userMarketeers buy ads on those platforms that generate the highest Return On Ad Spend \"ROAS\". They might not switch platforms immediately, but, eventually, they do.As demand for online marketing increased over the years, Meta has been able to increase its prices. Moreover, as Meta continuously improved its algorithms and \"Returns\" increased, it could further increase its prices without lowering marketeers' ROAS.This has been, by far, the strongest growth driver for Meta in the past.StatistaHowever, 2022 will be a tough year for Meta to further increase its prices, and thus, its Average Revenue Per User (\"ARPU\").Economic downturn will hurt advertising budgetsFirst,there is an economic downturn looming. Advertising is a very cyclical sector. During economic downturns, marketing budgets are the first to get cut. After the GFC in 2008, ad spending dropped by 25% in 2 years' time.emarketerMoreover, as digital advertising now has a share of 54% of total ad spending, further room to grow is declining. Overall market growth has slowed to 8.6%, from 20.9% in 2017.emarketerAdvertising supply is likely to increase furtherJust as it was the case for Meta, it is true for other platforms: the longer a platform exists, the better its algorithms become. This becomes clear when evaluating the ARPU evolution of Meta's rivals. As these are better able to identify users that are more likely to 'convert' (make a purchase decision after being shown an ad on the platform), they can charge more for advertisement space - thus driving up ARPU. At the same time, if users are more engaged (i.e. spend more time per session) on the platform, they are likely to see more ads, thus driving up ARPU even further.This is exactly the evolution we are seeing, as META's rivals have been increasing their ARPU steadily.For example, ARPU for Snapchat was up +18% year-over-year in Q4:Snapchat Q4 presentationWhile ARPU for Pinterest (PINS) was even up by +23% in Q4:Q4 Pinterest presentationAlso, the ARPU of Pinterest is likely to increase significantly in 2022 as Pinterest will scale the commercialization of its non-US customers; further increasing ad supply.ARPU of Meta was up +14%, which is lower than both its direct competitors, while also much lower than YouTube's revenue growth and probably Twitter's.What frightens me even more, however, is the evolution of Tiktok. Tiktok is not only the most-used platform among Gen-Z'ers, but it is also by far the most engaging platform.Studies show that engagement rates of \"influencers\" on Tiktok are up to 4 times as high as on Instagram, and 10 times as high as on YouTube. Important, Tiktok has only recently scaled up its ad supply. As marketers get more used to the platform and Tiktok's algorithms further improve in identifying the right user for the right advertisement... the return on ad spend on TikTok will increase sharply. Hence, more marketers will re-allocate advertising dollars away from Meta towards TikTok over the coming years.And then there is AppleThe third reason why Meta's ARPU will take a hit in 2022 is Apple's new privacy settings. Meta has estimated the damage to 2022 revenue at no less than 10B dollars.At the same time, Apple (AAPL) is increasing its own ad offerings. While initially only selling ads in the App Store, it now does too in the \"Apple News\" and \"Apple Stocks\" apps. Although Apple does not communicate about its future plans, it could very well further increase its advertisement offerings, with some analysts expecting Apple to become the next advertising giant.This will further increase digital advertisement supply, which will further put pressure on Meta's ARPU.3. Metaverse costsIn 2021, Meta has generated 2.2B dollars in revenue from its Metaverse-operations, while spending more than 12 Billion dollars - resulting in a net loss of over 10 Billion dollars.For 2022, I do not believe that revenue will increase all that much. Customers who bought Meta's Oculus Quest 2 in 2021, should be unlikely to buy a new version of the Quest in 2022.At the same time,Meta plans on hiring an additional 10,000 European engineers to further develop its Metaverse. Meta currently has 71,000 employees. Employee costs could increase, thus, by as much as 15% in 2022.ConclusionMeta's revenue is a function of \"number of users\" x \"average revenue per user\". Both factors are likely to come down in 2022, as competitors are on the one hand increasingly attracting users, and are on the other hand increasingly improving ad performance. An economic downturn or Apple increasing its advertising offerings are 2 \"Jokers\" that could further lower advertising prices.At the same time, Meta's costs are quite fixed. A decrease in revenue will not be matched by a decrease in costs. Indeed, Meta plans on increasing significantly its number of employees, above its ever-increasing army of content supervisors due to regulatory pressures.Hence, although Meta's stock might seem like value, trading at 17 times LTM earnings - I believe it is more like a value trap. The stock should be avoided at the current price, as many investors do not yet seem to realize that Meta's earnings could very well drop significantly in 2022 (i.e. Wall Street currently expects Meta to increase its revenue by more than 11% in 2022).","kind":"news","is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":9096663057,"gmtCreate":1644374630991,"gmtModify":1676533918816,"author":{"id":"3565081661382277","authorId":"3565081661382277","name":"Mm101","avatar":"https://static.tigerbbs.com/01758aa877d9e5a9767d24de3a4e2ff1","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3565081661382277","authorIdStr":"3565081661382277"},"htmlText":"Ff","listText":"Ff","text":"Ff","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9096663057","repostId":1186681956,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9096669780,"gmtCreate":1644374618030,"gmtModify":1676533918847,"author":{"id":"3565081661382277","authorId":"3565081661382277","name":"Mm101","avatar":"https://static.tigerbbs.com/01758aa877d9e5a9767d24de3a4e2ff1","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3565081661382277","authorIdStr":"3565081661382277"},"htmlText":"Ff","listText":"Ff","text":"Ff","images":[],"top":1,"highlighted":2,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9096669780","repostId":1186681956,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9096397339,"gmtCreate":1644295959191,"gmtModify":1676533910055,"author":{"id":"3567900334449295","authorId":"3567900334449295","name":"flyuphigh","avatar":"https://static.tigerbbs.com/eb5c25ecda1f89ac01158a7158e5ac2e","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"3567900334449295","authorIdStr":"3567900334449295"},"htmlText":"Old and Dangerous 👴🏼&nbsp;🌚","listText":"Old and Dangerous 👴🏼&nbsp;🌚","text":"Old and Dangerous 👴🏼 🌚","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9096397339","repostId":1186681956,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9096396225,"gmtCreate":1644295168016,"gmtModify":1676533909973,"author":{"id":"4105443374405760","authorId":"4105443374405760","name":"RoaringTiger","avatar":"https://static.itradeup.com/news/c2aee6e44a0d6a91f2442e004db0e4eb","vip":1,"hat":"https://static.tigerbbs.com/b073a07f77dbe6b3bec6b12311fde6bd","crmLevel":2,"crmLevelSwitch":0,"idStr":"4105443374405760","authorIdStr":"4105443374405760"},"htmlText":"The current&nbsp;Meta current&nbsp;platforms are hitting a plateau especially privacy concerns are growing. It remains to be seen how metaverse will turn out and it'll years before it'll bear any fruit. The silver lining is Meta has always responded to the situations promptly and we shall see how they'll navigate through this.&nbsp;","listText":"The current&nbsp;Meta current&nbsp;platforms are hitting a plateau especially privacy concerns are growing. It remains to be seen how metaverse will turn out and it'll years before it'll bear any fruit. The silver lining is Meta has always responded to the situations promptly and we shall see how they'll navigate through this.&nbsp;","text":"The current Meta current platforms are hitting a plateau especially privacy concerns are growing. It remains to be seen how metaverse will turn out and it'll years before it'll bear any fruit. The silver lining is Meta has always responded to the situations promptly and we shall see how they'll navigate through this.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9096396225","repostId":1186681956,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9096946608,"gmtCreate":1644288209551,"gmtModify":1676533908973,"author":{"id":"3575845422656644","authorId":"3575845422656644","name":"Prokuan","avatar":"https://community-static.tradeup.com/news/ba2455c3bc41f7961eed8d6d0d28070e","vip":1,"hat":"https://static.tigerbbs.com/b0a2963eb37c60c5d6d4a8dbcd266952","crmLevel":4,"crmLevelSwitch":1,"idStr":"3575845422656644","authorIdStr":"3575845422656644"},"htmlText":"Overvaluation&nbsp;","listText":"Overvaluation&nbsp;","text":"Overvaluation","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9096946608","repostId":1186681956,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9096946325,"gmtCreate":1644288177869,"gmtModify":1676533908973,"author":{"id":"3582203097187155","authorId":"3582203097187155","name":"gupzbajaj","avatar":"https://static.tigerbbs.com/b0441cdcbc87c9f271dee51139b52dff","vip":1,"crmLevel":3,"crmLevelSwitch":1,"idStr":"3582203097187155","authorIdStr":"3582203097187155"},"htmlText":"Way too much publicity&nbsp;","listText":"Way too much publicity&nbsp;","text":"Way too much publicity","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9096946325","repostId":1186681956,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"hasMoreComments":true,"newsSizeData":{"likeSize":44,"commentSize":6,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false}}