Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.
Have a stock YOU want us to review? Email my team here. – Mark
Hey Traders,
The Magnificent Seven have been driving the stock market higher – as I have said multiple times, this has not been a stock market rally…
It’s been an ultra mega-cap rally over the last 6 months.
On Wednesday, the strongest of these names was Meta Platforms Inc (Ticker: META), the owner of Facebook and Instagram.
It was announced that Meta was launching a new app, its own version of Twitter …
The stock boomed higher.
But given that it’s sitting at or near all time highs, is it a stock to buy or sell?
Let’s break it down.
The Good
It all starts with Instagram. While TikTok is the trendy app, Instagram is still massive, bigger than TikTok by several multiples.
Instagram has picked up many TikTok and Snap Inc (Ticker: SNAP) features over the years. While it basically murdered SNAP, it hasn’t done that with TikTok to date.
But users on Instagram continue to grow – in January the app saw a 1.8% increase.
Not the high rate of growth it used to have, but the app has saturated the market at this point.
Then there’s Facebook. No, young people don’t use Facebook that much.
But you know who does? People with money.
This is still a huge portion of META’s $117 billion in revenue it generates…
The PE for some of these Mag Seven names is actually not that high. Of the Mag Seven, only GOOGL and AAPL have a lower PE.
The company produces massive amounts of cash flow – 11.61 a share – and has plenty of cash on hand.
If you are comparing it to its peers, it’s actually not that overvalued.
The Bad
Zuck and his projects …
The Metaverse seems to be like a boat. It’s just a bottomless pit that META throws money down.
They don’t produce dollars. In fact, they’re hemorrhaging money in the unit. My son has a Quest 2 – he doesn’t use it.
With AAPL entering the metaverse, albeit at an insane price, META could start to see some real competition in a space it has owned … and not been able to make money in.
Then there’s the announcement of the new competitor for Twitter Inc (Ticker: TWTR). TWTR can’t make money being the only Twitter … how does META make money here?
In addition – and this was a point I got from our Operations Manager Christian – the new Meta version of Twitter (Threads) will only be an app. How many people use Twitter on desktop?
I think they are entering a space that is small and has a huge barrier to entry that could lose them money.
Looking at the numbers, yes relative to the Mag Seven, the PE is low. But they aren’t on the cutting edge of AI – although they should be.
Zuck needs to put his attention away from Twitter and toward AI.
When you think about it, Twitter just limited posts because they were getting scrapped so bad by AI developers. Maybe there’s a reason to develop your own version of Twitter … even if the app itself will never make money.
The Verdict
Below 200 this stock is a buy; here, I don’t love it. I would be selling long dated puts for yield. I’m not sure how much more upside exists right now.
Long term though, the stock might go to 400.
Questions about that? Leave a comment below!
Your Only Option,
Mark Sebastian