Billionaires were selling Meta shares earlier this year — should investors follow suit?
One of the stocks most seen on the list of hedge fund selling lists in the first quarter of this year was Meta Platforms (META -1.38%). Among the well-known billionaire hedge fund managers selling the stock were David Tepper, owner of the Carolina Panthers NFL team and founder of Appaloosa Management; Karthik Sarma of SRS Investment Management; and Philippe Laffont of Coatue Management.
Given the stock’s huge run in 2023, it should be of little surprise that these well-known investors are taking some profits from the stock.
The question is, should investors follow suit?
Meta’s big run
Meta shares were tossed into the bargain bin in 2022 and throughout the early part of 2023 for a number of reasons. These included concerns over competition from TikTok, worries over ad spending and the economy, the potential impact of Apple’s privacy changes, and a large amount of spending on the unproven metaverse.
The sell-off in shares, however, led a number of well-known investors to come in and scoop up the stock on the cheap. The stock subsequently rallied and is up more than 400% from its 2022 lows. As such, it’s not surprising that these billionaire investors would be taking some profits in the stock. However, that does not mean they have completely dumped their positions. For example, Meta is still Tepper’s fourth-largest holding, representing over 8% of Appaloosa’s portfolio.
For investors that got in around this time, it is a smart idea to sell some shares and take some money off the table. After all, this is just prudent portfolio management.
A long-term winner
Meta is no longer in the bargain bin, as it was when it was trading below a 12 times price-to-earnings (P/E) ratio back in late 2022. However, at a forward P/E of about 25 times, it’s not overly expensive either.
META PE Ratio (Forward) data by YCharts
The company saw a solid rebound in the ad market, with revenue growth of over 20% each of the past three quarters, highlighted by last quarter when revenue grew 27% to $36.5 billion. This was led by a 20% increase in ad impressions across its apps as well as a 6% average increase in price per ad. Meta also showed that it is continuing to grow its users, with family daily active users increasing 7% to 3.24 billion on average for March 2024.
At the same time, Meta was able to keep costs in check, with expenses rising just 6% year over year and its headcount down 10%. This led to its earnings per share more than doubling to $4.71.
Going forward, Meta plans to invest heavily in artificial intelligence (AI) initiatives. It has already introduced an AI assistant, Meta AI, which has been rolled out across its apps and augmented reality (AR) glasses. It also has developed its own large language model (LLM) called Llama, which it touts as the most intelligent AIS system that can be used for free.
In the future, it predicts a convergence with AI and the metaverse, particularly within its glasses products. The company is expecting a multiyear investment cycle in its AI and metaverse initiatives before they reach the scale to become profitable.
More immediately, though, Meta has said it is seeing solid returns from AI in its core products as it has led to improvements in engagement and ad performance, which is helping revenue growth. It also noted that it has seen revenue double from its two end-to-end AI-powered tools Advantage+ shopping and Advantage+ app campaigns.
Image source: Getty Images.
Overall, Meta remains one of the premier advertising platforms in the world, with extraordinary reach across its apps, such as Instagram and Facebook. No social media company has shown the ability to better monetize (profit from) its user base than Meta, and AI looks like it will only help in this regard.
The metaverse still remains a wild card. The company continues to pour money into the project, but whether the virtual reality world will take off and eventually become profitable is still to be seen. If it does, Meta stock will likely be a big winner. If it’s not successful, it will be a disappointment, given the money and resources directed toward it, but it should not derail the company in the long term.
At this point, the stock still looks like a long-term winner, although it isn’t the bargain it was a year or so ago.
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. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Meta Platforms. The Motley Fool has a disclosure policy.