Meta Platforms, formerly known as Facebook, is a colossal company with a market cap surpassing $735 billion. It ranks as the 9th largest company globally, following giants like Apple, Microsoft, Saudi Aramco, Alphabet, Amazon, Nvidia, Tesla, and Berkshire Hathaway. Trading Meta Platforms stock presents an excellent opportunity, especially for those focusing on short-term trades. In this article, we will explore how to invest and trade in Meta Platforms effectively.
Understanding Meta Platforms
Meta Platforms, the parent company of Facebook, is even more extensive than commonly perceived. The company holds ownership of several other platforms, each with billions of international users. Instagram boasts over 2.35 billion users, while Whatsapp exceeds 3 billion. Additionally, Meta owns platforms like Messenger and Reality Labs, focusing on virtual reality.
Meta Platforms is highly profitable, with its annual revenue soaring from over $7.8 billion in 2013 to a staggering $116 billion in 2022. Its annual profit has followed a similar trajectory, rising from $1.5 billion in 2013 to over $23 billion in 2022, with its peak profit reaching over $39 billion in 2021. The primary revenue stream for Meta Platforms is advertising, contributing to more than 90% of its total revenue. Besides, the company also earns from various fintech solutions, enabling payments and money transfers.
Safety Of Investing In Meta Stock
Investing in Meta Platforms stock comes with several advantages, such as a solid balance sheet with over $37 billion in cash and short-term investments. Though its cash reserves reached a peak of $67 billion, it still retains significant liquidity with total current assets of over $52 billion. Furthermore, the company has a manageable level of long-term debt, which allows it to repay its obligations comfortably. An encouraging sign is the consistent reduction of outstanding shares over the past few years.
Risks And Challenges
Despite its strengths, Meta Platforms faces some notable risks in the market. Its biggest challenge comes from TikTok, a Chinese application that has gained immense popularity and is gradually capturing market share from platforms like Instagram and Facebook. Additionally, Meta Platforms relies heavily on young users, but most Facebook users fall within the 25 to 34 age group, potentially impacting its appeal to advertisers. The lack of control over its own operating system, unlike competitors like Apple and Alphabet, poses further challenges for targeted advertising efforts.
Regulatory scrutiny concerning customer data handling and perceived ideological biases have also affected the company's reputation.
Competitors And Dividends
Meta Platforms contends with strong competitors such as Alphabet (Google), TikTok, Snap, Twitter, Pinterest, and Netflix. Unlike some traditional companies, Meta does not currently pay dividends. Instead, it reinvests its revenue and profits to foster growth. However, due to its robust cash position, investors expect that the company might initiate dividend payments in the near future. In the absence of dividends, Meta Platforms employs share repurchases as a means of returning value to investors, reducing outstanding shares, and boosting earnings per share.
How To Invest And Trade In Meta Platforms
Meta Platforms offers a promising opportunity for traders and investors due to its high float, liquidity, and notable volatility. Several key factors influence the company's stock price, including:
- Earnings Statement. The most significant catalyst for Meta Platforms' stock price is its quarterly earnings report. Traders and investors closely analyze various aspects of the earnings release, such as:
- Headline Revenue and Earnings. The company's revenue and profitability figures have a direct impact on the stock price. Strong results often lead to a higher stock price.
- Forward Guidance. Besides headline results, investors pay keen attention to the company's forward guidance. Positive earnings may not necessarily guarantee an immediate stock price rise if the guidance provided is weak.
- User Metrics. Meta Platforms' stock has historically been influenced by user growth metrics. However, recent user metrics have had a milder impact on stock volatility.
Regulatory Issues
Meta Platforms faces scrutiny from both Republicans and Democrats. Republicans express concerns about potential interference with free speech and restrictions on conservative talk. Democrats argue that the company needs to do more to protect users. These ongoing investigations and regulatory issues could impact the stock price.
Metaverse
Meta Platforms has invested significantly in the metaverse, positioning itself as a major player in the industry. However, the stock's performance will largely depend on the success and adoption of its metaverse division.
- Technical Analysis. Technical factors also influence Meta Platforms' stock price. Traders often observe technical indicators like moving averages for trading signals. For example:
- Golden Cross Pattern. When the 50-day moving average crosses above the 200-day moving average, it can signal a bullish trend, leading to a rising stock price: META stock daily chart + EMA (200) and EMA (50)
- Bullish Breakout. A bullish breakout above a key resistance level can trigger a significant price jump.
Conclusion
Investing and trading in Meta Platforms require a comprehensive understanding of the company's financials, market sentiment, and technical analysis. Traders should closely monitor earnings releases, regulatory developments, metaverse progress, and technical indicators to make informed decisions. Given Meta Platforms' high float, liquidity, and volatility, it can offer attractive trading opportunities for those equipped with the right information and analysis. As with any investment, it is essential to exercise caution and conduct thorough research before making trading decisions on Meta Platforms stock.
