Meta’s 54% Stock Comeback Is Still on Shaky Ground

Meta Platforms Inc.’s market-beating rally of the past few months is failing to convince some skeptics, given how much money the owner of Facebook and Instagram continues to pour into building its version of the metaverse.

Meta is the best performer in the S&P 500 Index since the stock’s recent low in November, gaining 54%. The bounce was partially driven by the social-media firm’s announcement that it would slash more than 11,000 jobs, the first major round of layoffs in the company’s history.

Yet signs of skepticism abound: Even after the surge, Meta sells for less than half its average price-earnings multiple of the past decade and is one of the cheapest stocks in the Nasdaq 100 Index. Its shares are still 64% below their 2021 record and analysts on average expect the stock to gain a mere 7.7% over the next 12 months.

The problem, from the bears’ perspective, is that Meta’s expensive bet on the metaverse — an immersive virtual world — isn’t going away any time soon and will account this year for a fifth of all costs. And its once-lucrative ad business is stagnating because of changes in Apple Inc.’s privacy policy that makes it more difficult to target consumers with ads on its devices.

The metaverse will keep the company’s expenses “relatively high,” said Louise Dudley, global equities portfolio manager at Federated Hermes. “There’s a lot of execution risk at Meta, making it a less of a bull case compared to the other mega-caps.”