Insights

Why Meta Platforms Sank 16.7% in June

What happened

Shares of Meta Platforms (NASDAQ: META) dipped 16.7% in June, according to data from S&P Global Market Intelligence. The social media conglomerate that owns Facebook, Instagram, and WhatsApp is slowing down hiring this year and was probably affected by the broad market sell-off in technology stocks last month. Shares of the stock are now down more than 50% this year, marking one of the worst drawdowns in the company’s history.

So what

There was no official news from Meta Platforms this month, but, being one of the most valuable companies in the world, there was plenty of other news to dig into.

First, on June 30, Reuters reported that CEO Mark Zuckerberg told employees the company would be slowing down hiring this year. That’s better than layoffs, which a lot of technology companies are going through right now, so I don’t think it’s a huge concern for Meta Platforms shareholders, but the stock was still down big following the news. Zuckerberg and the executive staff are scaling back hiring because they’re seeing what they’re calling one of the worst business drawdowns in the company’s history. Since Facebook and Instagram both make money selling digital advertising space, an economic downturn is likely to hurt its bottom line — less consumer spending means less spending on advertising.

Image source: Getty Images.

This may already be showing up in Meta’s financial results. Revenue grew only 7% year over year last quarter, one of the slowest in the company’s history, and could be headed for worse results in the next few quarters. It’s also dealing with Apple‘s new iOS privacy changes, which severely impeded Meta’s ability to target advertisements effectively. Investors are also probably worried about TikTok, the gigantic social network that exploded out of China a few years back. It’s very popular among younger social media users and could threaten Instagram’s business this decade.

Lastly, the downturn in the Nasdaq 100 Index put a hurt on Meta’s stock, as it did for most technology companies last month. The index was down a little less than 10% in the month.

Now what

Down so much this year, Meta Platforms now trades at a market cap of “only” $450 billion. With $40 billion in free cash flow generated over the past 12 months, the stock trades at a very cheap price-to-free cash flow (P/FCF) multiple. While there are some short-term concerns to be worried about with Meta’s business, now could be a solid time to buy if you’re a long-term believer in the company. 

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. Brett Schafer has no position in any of the stocks mentioned. 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.

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