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Shares of Meta Platforms (META 3.47%) plunged more than 60% this year as investors fretted over its slowing growth, its inability to counter Apple‘s privacy changes on iOS, its loss of active users to TikTok, and its obsession with burning billions of dollars on the metaverse.
To the bears, Meta’s downfall was the result of its hubris and self-inflicted wounds. But to the bulls, its steep decline represents a buying opportunity as it seeks out new ways to monetize the 3.71 billion people who use at least one of its main apps (Facebook, Messenger, Instagram, and WhatsApp) every month.
Meta remains a divisive stock, so let’s review two recent developments — a green flag and a red flag — and how they might affect its future.
Mark Zuckerberg. Image source: Meta Platforms.
Meta CEO Mark Zuckerberg repeatedly cited TikTok as a major threat over the past year. In Piper Sandler‘s latest survey of U.S. teens, 38% of the respondents chose TikTok as their top social media platform, while 30% picked Snap‘s Snapchat and 20% chose Instagram.
TikTok’s weed-like growth is forcing Meta to aggressively ramp up its investments in short video content, but it also expects that shift to reduce its near-term ad revenue because videos are tougher to monetize.
That’s why Meta’s stock recently rallied after a bipartisan group of U.S. lawmakers introduced a new bill — the Averting the National Threat of Internet Surveillance, Oppressive Censorship and Influence, and Algorithmic Learning by the Chinese Communist Party Act (or ANTI-SOCIAL CCP Act) — to block all apps with ties to the Chinese government. It would also block apps from companies based in Russia, Iran, North Korea, Cuba, Venezuela, and other nations deemed foreign adversaries.
TikTok’s parent company, ByteDance, is based in Beijing, and its ties to the Chinese government have been scrutinized by the Trump and Biden administrations. In 2020, the Trump administration tried to force ByteDance to spin off and sell its U.S.-based business, but that attempt was ultimately derailed by multiple lawsuits from TikTok and its users.
It’s unclear if the ANTI-SOCIAL CCP bill will last any longer than that doomed effort, but the mere notion that TikTok might be banned could draw some creators back to Instagram Reels and bring the bulls back to Meta’s beaten-down stock.
But even if TikTok is banned outright in the U.S., Meta faces its own regulatory headaches. The Federal Trade Commission (FTC) is still trying to force the company to spin off Instagram and WhatsApp in a drawn-out lawsuit that started in 2020, and it faces other antitrust and privacy probes across the world.
Here are some of the most notable regulatory challenges that Meta faced over the past month. It was fined 265 million euros ($282 million) in Ireland for Facebook’s data-scraping practices in 2018-2019. And WhatsApp recently lost its appeal of an earlier fine of 225 million euros in the same country regarding the app’s privacy practices.
Back in the United States, a new bill called the Journalism Competition and Preservation Act could force Meta to share a large cut of its advertising revenue with the media outlets it features on its platform. Meta has threatened to remove all news content from its U.S. platform in response to that bill, but it already resolved a similar clash in Australia last year by brokering a deal with the government instead of removing all its news stories.
Last but not least, the FTC sued Meta again to block its planned acquisition of Within Unlimited, the maker of the popular VR workout app Supernatural, amid concerns about its expansion into the digital fitness market.
All of these regulatory challenges could discourage the bulls from rushing back to Meta even if TikTok gets booted from the U.S. market.
I personally own shares of Meta and I’m still optimistic about its long-term recovery. But I also expect its stock to stay in the penalty box as long as its advertising growth remains sluggish and it continues to commit billions of dollars to its money-losing VR and metaverse businesses. So for now, there’s no real reason to expect the bulls to take charge again.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Leo Sun has positions in Apple and Meta Platforms. The Motley Fool has positions in and recommends Apple and Meta Platforms. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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