For a long time, Meta (NASDAQ: META) stock was an amazing investment. Back when it was named Facebook, it literally couldn’t stop rising.
However, over the last year it has been a very different story. If I’d invested £1,000 in the tech stock 12 months ago, I’d now be nursing some pretty big losses.
The stock has tanked
One year ago, Meta stock was trading at $307. Today however, the share price is sitting at $124. That represents a decline of approximately 60%.
Meanwhile, a year ago, the GBP/USD exchange rate was 1.32 whereas today it’s 1.22 (I would have needed to convert my pounds into dollars to buy the stock as a UK investor).
What this means is that, had I invested £1,000 in Meta shares 12 months ago (assuming I could buy ‘fractional’ shares with no commissions), my money would now be worth about £437.
Needless to say, that’s a disappointing performance. To break even from here, and walk away with my £1,000, I’d need to generate a gain of around 130%.
Why Meta has fallen
So, why has Meta stock performed so badly? Well, there are a few reasons.
One is that the technology sector has taken a hit this year as interest rates have risen. As a result of higher rates, capital has flowed out of the Big Tech stocks towards companies that have lower valuations. It’s worth noting here that Amazon, Microsoft, and Alphabet have also seen their share prices fall significantly.
Another reason is that Meta’s results have been poor. Not only has the group suffered from weakness in the digital advertising market, but it has also seen user growth slow. For Q3, earnings per share came in at $1.64, down 49% year on year, and well below the consensus forecast of $1.86 per share.
Finally, the company’s metaverse spending has really spooked investors. Right now, Meta is spending over $10bn a year on the metaverse with no guarantee this investment will pay off.
A lot of investors would prefer to see less money spent in this area and a higher level of free cash flow.
For example, in an open letter to Meta CEO Mark Zuckerberg, Altimeter Capital CEO Brad Gerstner recently said that the firm should limit its metaverse spending to $5bn per year.
The issue here is that Zuckerberg owns over 50% of the company’s voting shares, giving him majority power. In other words, no one can tell him what to do. This has probably also played a role in the share price decline.
Can the share price recover?
Can Meta stock recover from here?
I think a rebound of some sort is certainly possible. After all, the stock is pretty cheap now. Currently, the forward-looking P/E ratio is just 14.
If Meta slashed its spending and sentiment towards the company improved, its share price could move higher.
Having said that, I wouldn’t buy it for my own portfolio today. I’m not convinced that the company has a great business model.
All things considered, I think there are better opportunities for me in the tech sector.
The post If I’d invested £1,000 in Meta stock a year ago, here’s how much I’d have now appeared first on The Motley Fool UK.
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Ed Sheldon has positions in Alphabet, Amazon.com, and Microsoft. The Motley Fool UK has recommended Alphabet, Amazon.com, and Microsoft. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. 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. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.