NASDAQ is Still Down By -26%. Does That Make Meta or Snap a Buy?

Snap Spectacles machine at SXSW in 2017. Photo by JustTraveling. Wiki Commons. Used with permission.

NASDAQ is Down By -26%. Does That Make Meta a Buy?
 
The macro economy can have a dramatic effect on every company, acting like gravity dragging share prices down in recessions, and providing hot air to help prices soar in shoot-the-moon frenzies. However, as we head into another challenging year, it will help to underweight industries that are especially vulnerable, while hanging onto ones that might be more buoyant. Consumer staples, utilities and precious metals tend to lose less in recessions. So, are there any technology essentials or safe havens that corporations and individuals will stockpile, even when their budgets are strained?
 
Over the next two weeks, I’ll publish a series of blogs that will examine the various specializations in technology, and report on how each is expected to fare in 2023.
 
For our first in the series, we’ll examine social media companies, which are heavily reliant on advertising revenue.
 
Advertising expectations 

Magna is predicting that global ad revenue will increase almost 5% in 2023, from $795 billion in 2022 to $833 billion this year. Traditional media (publishing and television) are expected to contract -3-4%, with audio staying flat, and digital media showing growth of an expected 8%. Despite this forecast, social media CEOs are laying off staff, cutting costs, beefing up their own share repurchases (if they can) and navigating a challenging environment.
 
Meta Platforms
On Feb. 1, 2023, Meta Platforms (Facebook, Instagram, WhatsApp) announced an increased commitment to share repurchases of $40 billion, in addition to the $10.87 billion remaining in the previous authorization. That pleased investors, even though quarterly revenue was down -4.47% year over year and net income was down -55%. Share prices jumped and have doubled since the lows in November of 2022.
 
Can the rally continue? Is the buyback plan enough to keep shares high in a challenging year? Meta CEO Mark Zuckerburg characterized 2023 as the “Year of Efficiency.” Meta laid off 11,000 employees in November of 2022 – about 13% of its workforce. More layoffs are expected. The restructuring charge is expected to be about $1 billion.
 
​The Meta outlook for the 1Q 2023 is that revenue will be flat year-over-year, with annual net income coming in about the same as 2022. According to CFO Susan Li, Meta is counting on AI and improved spend performance to keep advertising dollars coming in. “While we are still contending with the broader macro uncertainty and signals landscape weighing on advertiser demand in the near-term, we are making good progress on our roadmap and are already seeing improvements to ad performance and measurement from the investments we’ve made,” according to Li.
 
Meta is benefitting from the popularity of Instagram, and in particular of their Reels – short user videos, enhanced by music and special effects. Meta is also finding novel ways to monetize Whatsapp. AirFrance is using Whatsapp to allow customers to share their flight information with family and friends. Meta is encouraging companies to engage with their customers and even answer questions on the app.
 
Buybacks and the trend toward digital ad spend helps Meta, while the expensive share price, FX, layoffs and a weak advertising industry are strong headwinds that could drag the price and valuation down.
 
Snap Inc.
Snap Inc. isn’t quite as solid as Meta heading into next year. In 2022, the company posted another net loss of -$1.43 billion. That marks eight years (at least) of cash negative operations. Will Snap Inc. ever find a pathway to profitability? Will a weak advertising climate exacerbate the corporate missteps (Snap Spectacles) that has Snap trading lower than its IPO (in Feb. of 2017), and down -85% from its highs in August of 2021? According to CEO Evan Spiegel, "We continue to face significant headwinds as we look to accelerate revenue growth.” Snap expects that the 1st quarter of 2023 will see year-over-year revenue declines of -10% to -2%.

Snap Spectacles were launched around the time of the IPO in 2017.

On the positive side, the company reported a 17% increase in daily active users in 2022. Snap ended the year with $3.9 billion in cash and marketable securities. And the augmented reality development sounds promising. However, according to the Evan Spiegel, Snap’s CEO, "We continue to face significant headwinds as we look to accelerate revenue growth.”
 
TikTok
TikTok, owned by ByteDance, is privately held. Twitter is now Elon Musk’s playground. Weibo, China’s Twitter, saw revenue decline by 25% year over year in the most recent quarter.
 
Bottom Line
If ad spending is curtailed beneath the rather ho-hum expectations, all of the social media companies will suffer. This is an area that I would underweight.
 
2023 started out with a bang on Wall Street. However, with Meta valuations expensive again (with a P-E of 22), it’s hard to imagine Meta share prices staying as lofty as they are today, even with a plump repurchase plan in place. Meta has a $481 billion market value and about $41 billion in cash and marketable securities to help them survive a weak 2023 (and beyond) and continue to crush Snap Inc.
 
Meanwhile, Snap is flying closer and closer to the trees. Investors might have given up on the company, but 375 million daily active users are still engaged.

If you work in the industry, you might have a unique perspective that we are not considering in this blog. If you do, we would love to hear from you. Please email [email protected] with Social Media in the subject line and give us your two cents!
 
If you’d like an Advertising Technology Stock Report Card, email [email protected] with Advertising Technology Stock Report Card in the subject line.

Email info @ NataliePace.com or call 310-430-2397 if you are interested in learning time-proven investing, budgeting, debt reduction, college prep and home buying solutions that will transform your life at our next Financial Freedom Retreat.
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Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The Power of 8 Billion: It's Up to Us and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 5th edition of The ABCs of Money was released on September 17, 2021. 
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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly traded companies or funds mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect a diversified strategy, which has been designed with the assistance of a financial professional who is familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge and patience.  

Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. Securities, financial instruments or strategies mentioned herein may not be suitable for all investors.