Facebook’s profit engine is proving irresistible for investors

Bloomberg

A lot of the content on Facebook’s social-media services may be seen as being toxic, but that hasn’t stopped investors from pouring money back into beaten-down stock.
Shares of the social media giant, now known as Meta Platforms Inc, posted their first weekly gain since early September, before a trove of internal data from a whistle-blower unleashed another round of intense scrutiny that fuelled a selloff. The stock rose 5.4% for the week, the most in more than three months. That would recoup almost half the stock’s decline from the past month.
While investors acknowledge the services offered by Facebook and Instagram are flawed and the scrutiny the company faces isn’t going away anytime soon, many are still attracted to the business model and the profits it generates.
“Investors are hip to the fact that consumers are going to use it and advertisers are going to pay them,” said Kim Forrest, chief investment officer at Bokeh Capital Partners. “It’s printing money.”
Meta is projected to generate nearly $40 billion in profit this year, up 37% from 2020, when customers cut back on digital advertising spending during the Covid-19 crisis. Trading at 23 times estimated profit, the stock is the cheapest among the five biggest US technology companies by market value.
Retail investors were also piling into the stock — Meta was one of the five most-purchased by the retail crowd, according to data from Vanda Research.
Still, challenges persist. The company’s projections for revenue in the current quarter fell short of expectations, it said last month, hindered in part by Apple Inc. curbs on collecting consumer data.
Meta is also being investigated by regulators from the US to Europe. The UK Culture Secretary Nadine Dorries warned the company and its chiefs are on course for criminal prosecution for failing to rein in the harmful effects of its platform — a week after the American Economic Liberties Project said it’s urging US authorities to investigate whether top executives broke the law.
Former Google Chief Executive Officer Eric Schmidt also said the conduct revealed in the leaked documents is “pretty concerning” and Meta “knew what it was doing.”
Still, Wall Street remains overwhelmingly supportive of the company and its recent strategy shift to new ventures, such as its focus on immersive digital experiences. More than 80% of the 62 analysts tracked by Bloomberg who cover the company have buy ratings, and only three recommend selling.
The company is investing billions of dollars in Reality Labs, a business unit that includes its Oculus hardware division, as it aims to become the operating system of choice for augmented reality and virtual reality.
JMP Securities analyst Andrew Boone said the investments are a call option on top of Meta’s ability to attract more advertisers due to “best-in-class” data on consumers.
“The prize is clearly owning the next computer operating system, which has generated two $2 trillion companies,” he said in an interview, referring to Microsoft Corp. and Apple. “If I think about the cost of that call option, of it being $10 billion a year, I think the juice is worth the squeeze.”