Investing in meta-Facebook is a good way to diversify your portfolio and increase your chances of getting passive income. But before you start making your investment decisions, you should consider several factors, such as recent earnings reports, the company’s financials, and its competitive position.
Also read: Investing in Funds for the Career Growth
Analysis of financials
There are a number of reasons why Meta’s results may differ from expectations. Some of these include the changes to Apple’s privacy settings, the ongoing legal dispute with the FTC, and the company’s transition to a new advertising format.
Facebook is a global social networking and communications platform. It began as a university project and became a leader in online advertising. The company has over 2.8 billion users worldwide.
It has the largest user base of any social media site. However, its growth has slowed down. As a result, the company’s revenue has also decreased. This could be the start of a downward trend.
Meta’s operating performance ratios (NPM and ROA) indicate that the company is using its capital effectively. For example, Meta’s operating margins are over 40% on average in the last five years.
Expenses are primarily comprised of salaries for Facebook’s operation teams and the energy and bandwidth costs associated with its data centers. Facebook’s expenses are growing faster than its revenue. This is because of investments in the company’s technical infrastructure.
While the company’s cash position is increasing, it is not enough to keep up with its current liabilities. Currently, the company holds about $8 billion in cash. In 2021, the company will increase its cash position to $16.6 billion.
Advertising expenses are the only expense item that is increasing faster than revenues. During 2020, the company will spend $2.3bn on advertising.
Competitive position
Facebook stock has been volatile recently. The stock dropped below $90, down from a high of $200. It was still trading at a healthy $130 in January, but lost a considerable amount of value in July. A major reason is that the company reported disappointing earnings.
The company’s stock fell by 67% in the first quarter, resulting in a market value decline of around $700 billion. In addition, the company has been hit by multiple investigations. During one of the most significant declines, it lost PS69 billion in just a single day.
Facebook is a large player in the tech sector. But the firm also faces stiff competition. And the competition isn’t just between rival apps. Rather, it’s between social networks like Facebook and Instagram.
Historically, the newest social network has had an advantage over the established firm. But as companies try to compete for limited advertising dollars, profits for both firms drop. This could spell trouble for Facebook.
Facebook has been criticized for allowing political data firm Cambridge Analytica to harvest millions of users’ data. While it’s not yet clear who exactly benefited from this data, the issue does raise concerns about how Facebook has used its user base.
Meanwhile, the company has struggled to compete in the virtual reality space. Despite its success with Instagram, the firm has not generated enough revenue from its messaging service, WhatsApp.
Zuckerberg’s company has taken steps to counter that challenge. Specifically, it has launched a similar feature on Instagram. However, this does not solve the problem of limiting user growth.
The company has also been hit by a series of privacy issues. Apple changed its policies last year, making it harder for the company to track its users’ activity. That has hurt Meta’s business.
Diversifying your portfolio
If you’re looking to diversify your portfolio by investing in Meta Facebook, there are a few things to consider. Despite its impressive growth in recent years, the company’s fortunes have dipped this year.
To diversify your portfolio, you’ll want to spread your money around in different asset categories. That way, you’ll be less susceptible to market volatility. There are a few ways to do this, including purchasing mutual funds or exchange-traded funds.
A good first step is to do some research. While you’re doing that, keep in mind that you’ll need to watch out for investment fraud. Likewise, you’ll need to know the taxes you’ll owe on any capital gains you’ve earned.
One of the easiest ways to diversify your portfolio is through an index fund. These invest in large numbers of stocks, typically from well-known companies. They have lower fees than individual stocks, so you’ll get more of your money back.
Another good way to get diversified is through a fixed-income fund. You’ll avoid market risk and gain some protection against recessions. However, you should also make sure that your portfolio is diversified in other areas.
Recent earnings reports
The digital advertising industry is in the midst of a slowdown. Companies such as Meta are struggling to attract ad dollars. In the third quarter, Meta reported a loss of $1.5 million. This was less than half the profit it generated in the same quarter last year.
During its earnings report, Meta also revealed it is facing several challenges. First, the company is facing competition from other social networks, such as Facebook. Second, it is losing ground to the short-form video app TikTok. Third, the iOS privacy update is impacting the online advertising market.
Despite the broader economic uncertainty, Meta is still gaining users. It is seeing 2% monthly active user growth in the most recent quarter. And, its headcount is up 28% from a year ago.
However, the company’s quarterly revenue and average price per ad are trending down. Despite this, the company beat analyst expectations on revenues. The company forecast Q4 revenue of between $30 billion and $32.5 billion.
The company is putting a lot of money into its metaverse. It is investing in both virtual reality and augmented reality. But investors are concerned that it is going too far into those ventures.
In fact, the company expects to invest $10 billion in total expenses in 2023. Despite the growth, it’s not certain if this will increase the value of the company.
Potential sources of passive income
In case you’re looking to get rich or at least make a lot of money, you’re probably familiar with Facebook and its related properties, including Messenger, Instagram, and WhatsApp. If you’re not, you might not be aware of the company’s foray into the metaverse. Meta has a budget for the project, but it’s not yet clear how it plans to use it.
For instance, it’s unclear how much of the money it spends on marketing will actually reach consumers. But it’s estimated that Meta will invest $10 billion into the metaverse by 2021.
It’s also unclear what, if any, returns the company will realize from the endeavor. The company claims it’s got a social license to operate, but that’s a subject of debate.
A company that churns out the most number of page views per second could be viewed as an anti-trust naysayer, as can a company that fails to provide sufficient detail about its plans. However, there are many reasons to take a long hard look at the metaverse, from the obvious to the obscure.
On a related note, the company has already been the subject of a slew of congressional hearings and whistleblower testimony. Some have pointed to the fact that the company isn’t entirely sure what it’s doing in the metaverse, and has failed to put its best foot forward.