After an ugly performance in 2022, Meta Platforms‘ (NASDAQ: META) stock has rebounded. It soared by 85% over the past 12 months and is now trading near the all-time high it set this month. But during that period, Meta’s insiders sold more shares than they bought.
A growing list of prolific billionaires — including Steven Cohen, Andreas Halvorsen, Lee Ainslie, Ken Griffin, Jonathan Soros, David Tepper, and Meta’s own co-founder and CEO Mark Zuckerberg — have also been cashing out of the high-flying stock.
By the end of the first quarter of 2024, when Meta was still trading at an average price of $446.07, Cohen and Soros had sold all of their shares while Halvorsen and Ainslie liquidated more than half of their shares. Does that cooling insider and institutional sentiment suggest it’s time for retail investors to back away from Meta?
Why did Meta’s stock surge to a record high?
Meta’s revenue and earnings declined 1% and 38% year over year, respectively, in 2022. That deceleration was caused by three challenges: Apple‘s (NASDAQ: AAPL) iOS update, which enhanced user privacy and made it harder to target ads based on third-party data; competition from ByteDance’s TikTok; and macroeconomic headwinds for the digital advertising market.
As Meta’s ad sales slowed, it ramped up its spending on its unprofitable Reality Labs segment, which houses its virtual reality and augmented reality devices and its metaverse initiatives.
That mix of slowing sales and rising expenses sent Meta’s stock plunging to a seven-year low of $88.09 on Nov. 4, 2022. However, the stock has soared by more than 500% since that day.
The bulls rushed back as Meta’s revenue growth accelerated again. In 2023, its revenue and earnings grew 16% and 73%, respectively. Its advertising business recovered as it countered Apple’s changes by mining more first-party data with AI tools, it attracted more spending from Chinese e-commerce and gaming companies that wanted to reach overseas customers, and it expanded its Reels short videos to keep pace with TikTok. Meta remained committed to expanding its Reality Labs unit, but it laid off thousands of employees to expand its operating margins again.
For 2024, the consensus expectations of analysts are that Meta’s revenue will grow by 18% and its earnings will increase by 36% as its core advertising business grows and gains new users. In the first quarter of 2024, 3.24 billion people used at least one of its family of apps (Facebook, Messenger, Instagram, and WhatsApp) daily — up 7% from a year earlier. A proposed ban on TikTok in the U.S. — which is set to take effect next January unless its Chinese owner, ByteDance, sells it — could drive even more users back to its apps.
Why would Meta’s big investors take profits?
Meta launched a new $50 billion stock buyback plan and initiated its first dividend this year, and its stock still looks reasonably valued at 27 times forward earnings. Yet, three unpredictable challenges might throttle its near-term growth.
First, Chinese advertisers accounted for 10% of its top line in 2023 and drove 5 percentage points of its total revenue growth. During Meta’s first-quarter conference call, CFO Susan Li warned investors it would be “lapping periods of increasingly strong demand” from those advertisers in 2024.
Second, Meta stopped disclosing Facebook’s total number of monthly and daily active users, as well as the monthly user count for its family of apps. Those changes suggest Facebook’s growth is still cooling off as it saturates the global market. Its growth slowdown could worsen if TikTok dodges a U.S. ban.
Lastly, Meta slightly raised the outlook for its full-year expenses last quarter to account for “higher infrastructure and legal costs” related to the expansion of its AI services, investments in its Reality Labs segment, and tougher “legal and regulatory headwinds.”
Those challenges could cause Meta to miss analysts’ estimates over the next few quarters. Persistent macroeconomic headwinds could also keep interest rates elevated and compress the valuations of Meta and other tech stocks. In light of these risks, it’s understandable that some big investors might think this is the right time to take some profits.
But should you follow their lead?
It isn’t surprising to see some billionaire investors trim their stake in Meta after its massive gains since late 2022, but I don’t think it makes sense for most long-term investors to follow their lead and dump the stock right now. Meta’s stock has already rallied about 19% from its average trading price in the first quarter and risen another 9% since the end of March, and I believe its strengths still outweigh its weaknesses.
Meta’s apps are already used by 40% of the world’s population, and it still has plenty of ways to expand its ecosystem and widen its moat against other advertising platforms. Its stock might waver over the next few quarters, but I’m confident it will head higher over the next few years.
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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. Leo Sun has positions in Apple and Meta Platforms. The Motley Fool has positions in and recommends Apple and Meta Platforms. The Motley Fool has a disclosure policy.
Billionaires Are Selling Shares of This Well-Known Stock was originally published by The Motley Fool
