Facebook (Meta) preview

Does a new name and direction for the company mean a new trend for ‘Meta’ stock?

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Fundamentals are promising

Meta (the new name of Facebook’s parent company) has had a tough patch for trading lately, along with the rest of the tech sector. The stock's latest trajectory seems to have more to do with the rebalancing of risk appetite following the Fed's moves. Multiple analysts still have the stock in the "value" category, citing the company's fundamentals.

The company has a P/E ratio of 21.5 at the time of writing but pays no dividend. This makes the firm more vulnerable to monetary policy since investors are buying in the hopes that the stock price will rise rather than for any yield.

What to look out for

Meta Platforms is projected to report sales of $33.4B (compared to its guidance of $31.5-34.0B), which would be around 19% growth over the prior year. But the bottom line is expected to show around a 1.0% decrease, with EPS forecast at $3.84.

Of note, Meta has restructured their account to report in two divisions: Family of Apps and Facebook Reality Labs. That could cause initial confusion as investors evaluate how that compares to prior reporting. So, we might see increased volatility. Secondly, those two sectors might merit their own segregated guidance for the first time.

Metaverse or bust

The drop in the bottom line is generally attributed to increased spending the company is doing to promote the Metaverse. That trend could easily continue into the next quarter as part of the company’s longer term change in brand and focus.

The company projected $91-97B in capital expenditures for 2022. Should there be a variation in that number, it could impact the stock price. Investors are likely to be paying close attention to comments about the company's return on investment from Metaverse. In the last quarter, Meta's CEO Mark Zuckerberg noted that investing in Metaverse will not produce any profits soon, but providing a number could support the stock if perceived positive

What next for FB stock?

The stock's price has fallen nearly 15% in 2022, entering a short-term downtrend and approaching a bear market. Only recently did bulls attempt to recapture the $300 resistance, but so far, failed to do so.

The MACD and RSI indicators offer a ray of hope as both show bullish divergence in the making. While this brings $320 and $350 in focus, it could easily mark another defeat as bulls have repeatedly aborted any efforts to regain control. This attitude may well continue into the rest of the quarter if Meta fails to meet expectations, easing up the path to $250.

Source: Spreadex Trading Platform

Key takeaways

Investors should focus on how much more Meta is planning to invest in the Metaverse in the following years and when it can expect to start generating profits in return. Put bluntly, the jury is out on whether the Metaverse is a dud and too much spending on it could spook shareholders.

Whether Meta Platforms EPS comes out ahead of or below expectations could move the stock in the short-term but the trend for FB stock over the coming year might depend more on US interest rate policy.