Is Meta Now a Buy?

Morningstar analysts now say Meta is undervalued, but does that make the company a bargain?

Sunniva Kolostyak 3 February, 2022 | 12:29PM
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Meta on a mobile

Shares in Facebook owner Meta Platforms (FB) plunged 20% in pre-market trading after the company missed earnings estimates last night.

The sharp downwards move expected when Wall Street opens today is the latest sign of volatillity in the US tech sector, following sharp sell-offs in Spotify (SPOT), Netflix (NFLX) and Peloton (PTON) in recent trading sessions. Meta said its daily Facebook usage numbers had fallen for the first time in 18 years, and that rival platforms like TikTok were poaching users.

Morningstar’s senior equity analyst Ali Mogharabi believes that this market move, which is similar to the one-day plunge in July 2018, is an overrreaction, however.  

“We believe the market is overreacting to Meta’s fourth-quarter 2021 results. With the stock down 23% in after hours, it is now trading at only nine-to-10 times consensus 2022 adjusted EBITDA, much lower than historical levels," he says. 

He is sticking with the the revenue and profit forecasts until the end of 2026, which support the $400 fair value estimate.

Shares are expected to drop today to $253, a fall of nearly $70, pushing them around 40% below their fair value of $400 and making them a 4-star stock. Before the latest earnings release the fair value was $404.

Mogharabi believes the shares, which have a wide economic moat rating, now present an attractive investment opportunity.

“We also think additional user monetisation opportunities, such as commerce, await Meta. Growth in online commerce combined with Facebook and Instagram’s various shopping features (such as try-ons) and giving merchants that open on Facebook exposure on Instagram should bring in more ad spending on the platform.”

One element of Meta's earnings update that unnerved investors was its plan to spend big in the coming years. Again, Mogharabi has a different view. 

“While we do not expect the firm’s metaverse revenue (or revenue from reality labs) to be material during the next few years, we applaud management’s decision to invest more aggressively in new products and services, and in diversifying Meta’s revenue," he says.

Wall Street had grown used to stellar earnings updates from the tech giants since the start of the pandemic, but this latest quarter has thrown up some surprises. Meta has been one, while Google parent company Alphabet beat estimates this week.

Apple (AAPL), meanwhile, reported record revenue of nearly $124 billion at the end of January but its shares are now overvalued, according to Morningstar analyst Abinav Davaluri. The company is still close to becoming the first $3 trillion stock.

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Sunniva Kolostyak

Sunniva Kolostyak  is data journalist for

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