Meta Platforms stock analysis: We have a problem here

Meta Platforms (NASDAQ: META) stock price has done well in the past 12 months as investors cheer the company’s turnaround. It has jumped by more than 172% in this period and is now sitting at its all-time high, giving it a market cap of over $1.03 trillion.

Meta Platforms has staged a strong rally, helped by the company’s decision to abandon its metaverse ambitions. Instead, it has strongly pivoted to Artificial Intelligence (AI) and other fast-growing areas. 

The company has benefited from cost cuts and a robust advertising environment. It has also managed to make a fortune even after Apple’s iOS upgrades that focused on privacy. Meta has also benefited from the craze of the Magnificent 7 stocks.

All this have helped the company make a lot of money. Its revenue jumped to more than $34 billion in the third quarter. It had made $32 billion and $28 billion in the previous two quarters respectively. Its cost cuts have made it highly profitable, with its net income rising to over $11 billion in Q3.

Meta Platforms is able to generate these numbers because of its pivotal role in online marketing. In this, it is the second-biggest company in the industry after Google. Recently, however, companies like Amazon and TikTok are also gaining share in the industry.

I believe that Meta will publish strong financial results on Thursday. I expect it to publish better revenues than the median estimate of $39.1 billion. Its earnings per share (EPS) is also expected to come in better than expected.

However, I believe that Meta Platforms has several important risks that could hinder its growth. The biggest risk is that most users have stopped posting in their social media platforms. WSJ recently did a report that noted that most people who used to post a lot are no longer do it. I can also see that in my timeline.

Instead, most people who use Facebook and Instagram visit it to see what other people are posting. All this could hurt the company in the long term.

The other challenge is that Facebook has started to feel outdated. While the platform was very popular in the past, it now feels out of place. Indeed, the average age of most Facebook users found that they are above 25. In other words, most young people who are key markets rarely use Facebook. Instagram is starting to feel the same.

Further, there are signs that Threads, Meta’s alternative to Twitter is not working out well. Data by SimilarWeb shows that Threads had 58.76 monthly visits in December. It had 176 million users in the fourth quarter while TikTok and Twitter had 6.7 billion and 18.26 billion, respectively. 

On the positive side, Meta Platforms is still a highly profitable company with one of the strongest balance sheets in the market. It ended last quarter with over $61 billion in cash and $18 billion in long-term debt.

Turning to the daily chart, we see that the Meta share price has been in a strong uptrend for months. It has cruised above all moving averages while the Relative Strength Index (RSI) and the Stochastic Oscillator have moved to the extremely overbought level. This is a sign that the stock has a bullish momentum.

Therefore, using trend-following principles, we can assume that the stock will continue rising in the coming months. However, we can also not rule out a pullback to $327, its highest swing in July last year.

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