Meta Platforms (META 0.41%) doesn't get the credit it deserves in the tech realm. It's a truly incredible business, growing rapidly and with a strong product pipeline, yet the market doesn't deem it necessary to value it at the same levels as its peers.
I think that's a mistake and opens up a compelling investment opportunity for a company that has proven it can be a top stock in the market. I think it's the most undervalued big tech stock on the market right now, and investors should take advantage of the sale price while it's still available.
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Meta Platforms is a tale of two businesses
Meta Platforms can really be thought of as two companies: its legacy business and its new products. Its legacy business includes social media platforms such as Facebook, Instagram, WhatsApp, and Threads. These platforms generate revenue from advertising and are among the best places to place an ad on the internet.
Additionally, Meta has been integrating artificial intelligence (AI) features into its ad platform, boosting its effectiveness. This has led to soaring revenue growth, with Meta reporting 33% revenue growth during the first quarter. That's a strong result for a legacy ad business and proves that Meta's AI investments haven't been for nothing.
NASDAQ: META
Key Data Points
That's the strong part of the business that investors love. There's also the part of the business that investors despise: Reality Labs.
This includes Meta's augmented reality and virtual reality division and has failed to produce a profit every quarter of its existence. In Q1, Reality Labs generated only $402 million in revenue and lost $4 billion on operating expenses. That continues an unfortunate loss pattern. Some investors hope a new product could eventually turn this division profitable, though we're still waiting.
Because investors are so concerned about Reality Labs and Meta's massive data center capital expenditure build-out, the market has lost faith in the stock, and it trades for a dirt cheap 12.6 times operating cash flow. The last time Meta's stock was this cheap was when the market lost all hope for Meta during 2023, and once it regained hope, the stock pulled off an incredible rally.
META Price to CFO Per Share (TTM) data by YCharts
If Meta can bring one of its superintelligence models to the masses and have it transform its business or launch an innovative product like AI glasses, that could trigger a major run-up in Meta's stock. Even if it doesn't, the advertising business remains a strong investment case, as it continues to deliver incredible results quarter after quarter.
Meta also laid off 8,000 employees the other day, which is unfortunate for those who lost their jobs, but should drive an increase in earnings due to decreased expenses. That will make Meta's stock even cheaper, further underscoring its value.
The market is valuing Meta like a dying business; investors should take advantage of that skepticism because Meta is alive and well.
