A Beginner's Guide to Buying Facebook (Meta) Stock

Suffice it to say Meta (META), formerly Facebook, has had its ups and downs over the past few years, and so has its stock price. Ever since its initial public offering in May 2012, it has remained a high-profile company that consistently captures the public's imagination.

One of the largest US companies, Meta is held widely by both retail and institutional investors. As Facebook, it was included with other tech heavyweights in the popular FAANG acronym alongside Amazon (AMZN), Apple (AAPL), Netflix (NFLX), and Alphabet (GOOG) unit Google. Its shares enjoyed an exceptionally strong and relatively smooth rise for years after the IPO, but that has been punctuated by shareholder concern around data privacy scandals and anti-trust investigations. Meta shares overcame those issues, reaching all-time highs in August 2021, only to plummet 25% on Feb. 3, 2022, after the company provided quarterly results and a revenue outlook that trailed analysts' estimates.

2018-2022: Some Very Bad Years

Of course, the social media giant has not been exempt from problems, and they came to a head in 2018. Issues of serious concern had been building for years over Facebook's (now Meta's) handling of user privacy and fake news, the company's implicit role in permitting the site's use by criminals and terrorists, and a user data breach of massive proportions.

Facebook experienced its most severe backlash for inadvertently assisting the now-defunct British political consulting firm Cambridge Analytica to data-mine and exploit millions of user profiles that appear to have been misused to target political ads during the U.S. presidential election season and in the U.K.'s Brexit referendum campaign. 

Partly as a result of that personal data scandal, Facebook issued lower guidance for ad revenue in its July 2018 earnings report, which contributed to the company's stock plummeting as much as 22% intraday. This marked the stock's biggest intraday decline until Feb. 3, 2022, when shares plunged as much as 27% at the morning lows. In fact, the 2018 drop marked the largest loss of market value in the history of the U.S. stock market by a single stock at about $119 billion, until the Feb. 3, 2022 slump initially estimated to have drained $230 billion in market value.

Throughout 2022, META stuck continued to struggle, reaching lows not seen since the year 2015. This came off of a broader selloff in tech stocks, plus large fines and negative regulatory rulings from EU regulators, claiming that the company broke the law by forcing users into receiving targeted ads and violating their privacy. In fact, META stock was down more than 60% for the year 2022, making that its worst to date on record.

How to Analyze Meta

Buyers at the lows on the stock's worst days are likely to be aware of the problems causing the decline, and to be counting on scooping up a bargain amid bearish sentiment. Some will arrive at that judgement only after a careful analysis of the company's prospects.

With this guide, beginning investors should get a better idea of how to navigate through potential pitfalls and what to look for when considering investing in Meta (META) and similar stocks. Venturing into the stock market can be frightening, but every seasoned investor was once a beginner.

Before buying any stock, investors should perform due diligence to ensure that the company and stock have the potential to perform well. Due diligence can include different forms of analysis, the most basic being fundamental analysis and technical analysis.

• In fundamental analysis, the investor evaluates the intrinsic value of the stock by considering the overall economy and industry conditions as well as the finances and management of the company.
• Technical analysis uses statistics that include the stock's past prices and volume. Rather than looking at a company's intrinsic value, technical analysis focuses on identifying patterns and trends in the stock’s current and future price movements.

Fundamentally, investors should research the company’s financials. These can be found in its latest SEC filings. The company’s website should have an investor relations page. Financial sites like our own Investopedia also offer exceptionally useful company-specific information.

Doing Due Diligence

To make a case for buying Meta stock, the investor should analyze ad revenue growth, including mobile growth, usage trends, risks to operations, and outlook and guidance. 

Also look at the trends for profit margins, total revenue, and monthly active users (MAU). Are these numbers going up, down, or sideways?

After doing one's due diligence and feeling comfortable with the decision to buy the stock, the investor should determine if the current price is an appropriate entry point. 

Fundamental analysts calculate valuation metrics to determine if the stock is undervalued (when the entry price is most attractive) or overvalued (investors may want to wait for the price to come down before buying the stock). The price-earnings ratio (P/E Ratio) is a common valuation metric, but there are many others.  The P/E ratio for Meta was 12.4 as of January 2023. In isolation, that doesn't tell the investor much. However, if it's compared to historical or industry P/E ratios, it can help determine how the stock is valued relative to its past and competitors.

Another way to see if the stock price is at a good entry point is to look at its historical stock chart trends. Technical analysis attempts to use price and volume data to analyze trends in supply and demand and find favorable entry points based on common trading patterns.

If You Decide It's a Buy

Once the investor determines that the stock is a good value at the current price, the next step is to calculate the number of shares to buy. Most online brokerages have a share calculator attached to their stock purchase process. Otherwise, the calculation is:

Total Amount Desired to Invest / Price per Share = Number of Shares to Purchase

The current price per share, which for Meta was around $130.00 on January 8, 2023. This share price puts the company's market capitalization at roughly $340 billion.

For Meta, if the total purchase amount is $10,000 at a price per share of $130, the investor can buy:

$10,000 / $130 = 76.9 shares 

The Bottom Line

In conclusion, Facebook's stock has experienced significant fluctuations and faced a number of challenges, including data privacy scandals, and regulatory investigations. Potential investors should carefully research the company's business fundamentals and consider market trends before deciding to buy the stock. The company's reliance on ad revenue and potential for government regulation and competition from newer social media platforms are among the risks to consider. Additionally, the company may face backlash from users or advertisers over controversial content or data privacy issues and could reach a saturation point in terms of user growth and have difficulty maintaining user engagement.

The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. Though we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.