Meta Platforms Dips 14% in a Month: Buy, Sell or Hold the Stock?

Core Viewpoint - Meta Platforms (META) has experienced a significant decline in share price, dropping 13.7% over the past month, which is worse than the declines seen in the broader Zacks Internet Software industry and the Zacks Computer & Technology sector [1][2]. Economic Impact - The decline in META's stock can be linked to challenging macroeconomic conditions, particularly the tariffs imposed by U.S. President Donald Trump on trade partners, which are expected to negatively affect technology stocks, including META [2][3]. - Higher tariffs are anticipated to impact the digital advertising sector, where Meta, along with Alphabet and Amazon, is projected to capture about 50% of global ad spending by 2028 [2]. Revenue Dependency - Meta generates over 90% of its revenue from advertising, making it particularly vulnerable to the adverse effects of tariffs and a potential trade war [3]. - In contrast, Alphabet and Amazon have a lower dependency on advertising due to their cloud computing services, which may provide them with a buffer against the negative impacts of tariffs [3]. Stock Performance - Since the announcement of tariffs on April 2, META shares have fallen by 14%, underperforming Alphabet and Amazon [4]. AI and User Engagement - Meta is leveraging AI to enhance user engagement, with over 3.35 billion daily users and more than 700 million monthly active AI users [8]. - The company is implementing updates to improve AI responses, which is expected to boost user engagement further [8]. Content Monitoring Changes - META's decision to relax content monitoring through the Community Notes program aims to promote free speech and enhance user engagement across its platforms [9]. Advertising Technology - The proprietary machine learning system, Andromeda, powered by NVIDIA, has improved ad quality and retrieval performance, achieving over 6% recall improvement and more than 8% ad quality improvement in selected segments [10]. Social Commerce Initiatives - META is focusing on social commerce through initiatives like Meta Verified, which offers subscription plans to enhance business credibility on its platforms [11]. Earnings Estimates - The Zacks Consensus Estimate for META's first-quarter 2025 earnings is $5.22 per share, reflecting a 1.8% decrease over the past 30 days but indicating a year-over-year increase of 10.83% [12]. Valuation Metrics - META's stock is currently trading at a forward Price/Sales ratio of 7.9X, which is higher than its median of 7.83X and the broader sector's 5.81X, suggesting a stretched valuation [13]. Future Outlook - Despite the challenges, META's focus on AI is making it attractive to advertisers. However, the first-quarter 2025 results may be impacted by unfavorable foreign exchange rates and high operating expenses projected between $114 billion and $119 billion [17]. - META is expected to invest heavily in AI infrastructure, with capital expenditures projected between $60 billion and $65 billion for 2025 [18]. - The stock is currently trading below its 50-day moving average, indicating a bearish trend [18].