Meta Platforms (NASDAQ:META) reported earnings last night. As a result, the share price is down 4.5% in pre-market trading today.
I’ve looked at the company’s earnings report. I think that the business is still in great shape and I’m looking at buying more shares.
With Meta, there are two things that I pay attention to. The first is how much money the business is making and the second is how the company’s user base is developing.
On the profitability side, the report didn’t look strong. Net income came in 36% lower than last year and revenues were largely unchanged.
Those are the headlines and there’s clearly some disappointing news. But I don’t think that the report justifies the decline in the Meta Platforms shares price.
As a shareholder, I believe that the report indicates that the company is in decent shape. I see the bad news as the product of a difficult environment, not a problem with the business.
Let’s start with the company’s earnings. A decline in net income is clearly a bad thing, but I think that looking at the wider context is helpful here.
The last three months have been difficult for digital advertising companies across the board. Snap, Twitter, and Alphabet have all identified lower demand in the online ad space.
This is due to businesses cutting back on their marketing budgets. With this in mind, I’m not surprised to see Meta also reporting lower income numbers.
I’m unconcerned by the disappointing numbers. In my view, the company’s net income tells me more about the macroeconomic situation than the state of the underlying business.
I think that the number of users on its platforms gives a better idea of how the company’s core business is doing. More users means a bigger audience for advertisers, which means more income for Meta.
Declining monthly active users on Facebook isn’t good. But I also saw reason for optimism in the report.
The number of daily active users increased from 1.96bn to 1.968bn. This is encouraging, particularly following the decline at the end of last year.
There were also small increases in the number of daily and monthly active people across the broader Family of Apps. This indicates to me that Meta’s user base remains fairly robust.
The company’s earnings are lower than they might have been. But my conclusion is that this is the result of a temporary headwind.
A difficult economic environment is dampening demand for Meta’s services. But I think that this will subside and when it does, the company will once again do very well.
A 4.5% decline in the Meta share price only undoes the effects of the previous day’s trading, when the stock increased by 6.5%. I therefore don’t see the fall as particularly significant.
In my view, the stock is roughly the same investment proposition it was yesterday. Since I would have bought it then, I’d buy it now.
The post With the Meta share price falling, here’s why I’m still buying Facebook appeared first on The Motley Fool UK.
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Suzanne Frey, an executive at Alphabet, 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. Stephen Wright has positions in Alphabet (C shares) and Meta Platforms, Inc. The Motley Fool UK has recommended Alphabet (A shares), Alphabet (C shares), and Twitter. 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.