From “Sell It” to “Buy It”: How Meta’s AI Gamble Resurged its Stock Price

  The stock price trend of U.S. technology blue-chip Meta in the past two years can be said to be “up and down.” In August 2021, Meta’s stock price hit a record high of $384; in October 2022, it fell below $100, a drop of nearly 75%; and today one year later, the stock price rebounded to around $340, starting from the low This round the increase is as high as 220%.
  The fluctuations in stock prices reflect changes in the company’s fundamentals to a certain extent. The market’s understanding of Meta, from “selling it” to “buying it”, is also “up and down.”
Meta was once called “selling it”

  Meta is classified in the social networking sector, and everyone is familiar with its applications such as Facebook, Instagram, and WhatsApp. These apps are basically free. The company’s profits mainly come from advertising, so Meta is also an out-and-out advertising technology company. The development of Meta depends on the popularity of its social media applications on the one hand and its advertising technology and monetization capabilities on the other. The two complement each other. It can be said that Meta has the most popular social networking application and also has the best online advertising display effect. It is a two-wheel drive company.
  But advertising is hidden behind social networks, and ordinary consumers do not directly care about advertising. But for investors, since the vast majority of Meta’s revenue comes from advertising, they must care about the advertising industry. This is mainly reflected in three aspects: first, Meta’s advertising technology level and whether it can accurately display ads; second, whether the advertising industry is prosperous and whether advertisers have sufficient funds; third, competitor dynamics. Unfortunately, starting from the second half of 2021, Meta began to encounter headwinds in all three aspects.
  I think Meta’s online advertising display performance once ranked first among its peers in accuracy, because it mixes first-party data with a large amount of third-party data to proxy advertising outside of the Facebook application. Obviously, the more data there is, the more data there will be. The more beneficial it is for accurate display. (In contrast, some companies like Unity and The Trade Desk do not mix first-party data from publishers with third-party data from ad platforms. Facebook blurs these important points about how the data is used. Boundaries.)
  In the fall of 2021, Apple’s new privacy settings regulations came out, so many Apple device users chose to refuse to upload private data, which had a major impact on many online advertising companies. Among them, Meta was the most affected. At that time, the company judged that it would reduce revenue by at least US$10 billion. At about the same time, Meta’s stock price began to fall.
  The house leaked and it rained all night. It encountered technical problems, and the industry also encountered problems. From the financial reports of companies such as Google, Snapchat, and Microsoft, we can draw clear conclusions. Due to macroeconomic factors, the advertising industry did experience a recession at that time, which was specifically reflected in the general reduction of advertisers’ budgets.
  What’s even more unfavorable is that although the pie is shrinking, the number of people sharing the pie is still increasing. Companies such as Amazon, Apple, and Netflix are either new entrants or continuing to strengthen their advertising capabilities. Although they are not advertising in the social field, from the advertiser’s perspective, he doesn’t care how you classify them. What he considers is the advertising effect. There is only so much advertising budget. If the streaming media advertising is effective, he will allocate more budget; if the social media advertising is not as accurate as before, then he will reduce the budget investment. In the social media field where Meta is based, due to the development of short videos, the impact of Douyin is unquestionable. Although the number of Meta’s social network users has not decreased (or even increased slightly), Douyin has undoubtedly diverted the online social time that originally belonged to Meta, and thus diverted the corresponding advertising revenue.
  Meta responds quickly to these adverse situations.
  In response to the challenge of Douyin, Meta launched its own short video Reels, which has done a good job in attracting users, and its development momentum is in line with expectations.
  It should be noted that the development progress of Reels requires careful consideration by management. Because Reels is still in a period of vigorous support (money burning period). If you burn money desperately at all costs, first of all, the books will definitely look ugly, which is inconsistent with the market trend at that time (the pursuit of profits); secondly, even if you burn money vigorously, it may not directly defeat Tiktok, and it may also affect its own mature businesses such as Facebook ( After all, consumers’ time is limited).
  Regarding the impact of Apple’s new privacy regulations, Meta chose to increase investment in artificial intelligence technology, hoping to improve the accuracy of its own advertising positioning. At the same time, Meta increases its efforts to burn money and continues to invest heavily in the Metaverse. The reason for this is that Meta naturally believes that the Metaverse is the future development direction and the next platform entrance (to express its determination and attention, the company even changed its name from Facebook to Meta), and the second reason is that if it masters the platform, then Incidents like being stuck by Apple this time will never happen again.
  Although these measures are good, they have two characteristics: first, they take time and cannot be effective overnight; second, they burn money. For most of 2022, the situation in the advertising industry has not improved, and Meta’s financial reports have fallen short of expectations one after another. Reflected on the stock price, it continues to fall. Many people reluctantly refer to Meta as “selling it”.
How does Meta become a “buy it”

  As headwinds continued, it became clear that Meta’s management needed to make further improvements and prioritize things.
  In late October 2022, CEO Zuckerberg announced that he would still increase investment in artificial intelligence in technology, because this is the key to the future growth of his advertising business. As for the Metaverse business represented by MR/AR, its cash burn will be controlled. At the same time, he emphasized “efficiency,” which means that Meta will conduct large-scale layoffs.
  At this time, some investors have begun to call Meta “buy it”. Although part of the reason can be attributed to the belief that the company’s measures will eventually bear fruit, it is mainly because Meta at this time is already very cheap in terms of valuation. , at one time the price-to-earnings ratio was only about 12 times. In the following year, good news about Meta spread frequently, its performance continued to exceed expectations, and its stock price also rose sharply.
  Meta’s third quarter report for fiscal year 2023 provides a lot of good news. Let’s first look at the achievements in artificial intelligence. It should be noted that Meta did not just follow the trend after the popularity of “generative artificial intelligence” in early 2023. It explored the application of artificial intelligence in its own social and advertising fields very early and had its own naming definition. For example, the effectiveness of the “recommendation artificial intelligence” system to improve advertising accuracy is gradually revealed. The company notes, “This year alone, users are spending 7% more time on Facebook and 6% more time on Instagram due to improvements in recommendations. Our AI tools for advertisers are also shopping through Advantage+ The campaign drove results, reaching $10 billion in run rate. More than half of advertisers use our Advantage+ creative tools to optimize images and text in their ad creatives.” It’s fair to say the solution was the company’s third quarter achievement of 31 % year-on-year growth in ad impressions.
  Of course, Meta will not miss the opportunities brought by “generative artificial intelligence”. This manifests itself first in new business opportunities. For example, Meta believes that Business Message Delivery will become the next major pillar of its business.
  Meta noted that most business messaging today occurs in countries with lower labor costs, such as in Thailand and Vietnam, where a large number of businesses communicate with customers via text messages. But this is not feasible in developed countries because labor costs are too expensive. But now with anthropomorphic assistants brought about by generative artificial intelligence (which Meta calls “business artificial intelligence”), Meta believes there is an opportunity to reduce costs. Therefore, allowing business artificial intelligence to serve more enterprises will be a focus of Meta in 2024.
  In the metaverse field that is close to its heart, Meta has launched a new generation of consumer artificial intelligence experience. This includes Meta mixed reality device Quest3, next-generation Ray-Ban Meta smart glasses, artificial intelligence assistant Meta AI, productivity-enhancing tool AI Studio platform, and image creation model Emu, etc. Meta believes that these new products, new applications and new experiences powered by artificial intelligence will shine in 2024.
How to maintain “buy it” in the future?

  Although Meta’s application of artificial intelligence has been spread across all areas of the company so far, and it seems to be developing well, it should be noted that its road to artificial intelligence is not destined to be easy or smooth. As far as Meta is concerned, due to its platform characteristics, the launch of new products and new businesses is easier to achieve results in the early stages (relying on the company’s product matrix to attract traffic), but it remains to be seen whether the development trend can be maintained in subsequent stages. Take Threads (an app similar to Twitter’s “X”) launched by Meta as an example. Since it is tied to Instagram, its number of new users has exceeded 100 million in a short period of time. It looks like another phenomenal explosion. It was a product, but then it lost momentum and many users stopped logging in after trying it out. Another example is Reels, a short video application that competes with Douyin. Although it has received resources from the company and the number of new users has also grown rapidly, it remains to be seen whether it can catch up with Douyin in the future.
  For Meta, there is good external news worth mentioning. In its latest financial report, Meta pointed out that in the context of still weak macroeconomic conditions, the online commerce vertical was the largest contributor to year-on-year growth in its advertising revenue, while online commerce and games mainly benefited from strong spending by Chinese customers. Although the name of the Chinese customer was not specified, a comprehensive analysis can conclude that the Chinese customer is likely to refer to companies such as Pinduoduo and Shein. Over the past year, Pinduoduo has conquered overseas markets, developed rapidly, and achieved results that are obvious to all. Pinduoduo, Shein and others have stated that the company will still focus on the pursuit of rapid market growth, which means that Meta’s advertising business will still have higher security than the entire market.
  Meta’s current valuation has returned to a reasonable range. The market expects Meta’s EPS in 2024 to be US$17.4. Based on the current stock price, the price-to-earnings ratio is about 19 times. Therefore, whether Meta will continue to be a “buy it” in the future depends on its performance and mainly on the progress of the application of artificial intelligence technology in various businesses.

error: Content is protected !!