Drama Is Percolating at Meta Platforms: Should Investors Steer Clear?

Meta Platforms (META 0.65%), the company formerly known as Facebook, has never been the type to be devoid of drama. The social media giant has been in the limelight for the better part of the last decade, in part because of its massive scale. Meta boasts nearly half the planet as consumers of at least one of its family of apps, which include Facebook, Instagram, WhatsApp, and Messenger. 

Recently, the drama has percolated following news of an investigation into former chief operating officer Sheryl Sandberg’s use of company resources for personal projects. The word of the investigation came shortly after Sandberg announced her resignation from the role effective June 1, although she has kept her position on the board of directors of Meta. Understandably, the news has some investors asking if they should stay clear of Meta Platforms’ stock.

Sheryl Sandberg is stepping down due to fatigue 

Unfortunately for Meta Platforms, the news was not the beginning of negative sentiment in recent times. The stock price has more than halved as headwinds have arisen that are lowering growth prospects. These include Apple‘s privacy changes to apps operating on its smartphones that make it more difficult for Meta to track users across apps, as well as a decrease in appetite from advertisers as they face macroeconomic headwinds of their own. 

In its most recent quarter, which ended on March 31, Meta’s revenue increased by 7% from the same quarter in the prior year. This starkly contrasted with the compound annual revenue growth of 41.3% in the previous decade. The slowdown may partly explain why the company is pivoting its focus to the metaverse. Management could perceive the deteriorating prospects of its social media business as long-term rather than short-lived.

META Revenue (Quarterly YoY Growth) data by YCharts

Still, Meta boasts 3.6 billion monthly active users across its family of apps. Marketers will undoubtedly remain interested in the opportunity to influence the decisions of this massive group. Even while competition is rising, Meta’s user total has shown resilience. Folks have developed strong habits over a decade of interacting with Meta’s social media apps. It will be difficult for competitors to steal these customers away permanently. That said, it is not impossible, and investor concern over this prospect is reasonable.

These significant challenges could all be reasons why Sandberg decided to resign. At 52 years old, she might be less interested in a long-term project like the transition to the metaverse. According to the Wall Street Journal, Sandberg told friends and coworkers she stepped down partly because she was burned out. Still, it’s fair to assume the investigation into her private use of Facebook resources probably played some role in her decision to resign.

Meta’s stock has already paid the price 

META Price to Free Cash Flow data by YCharts

Following Meta’s stock price crash, it is trading at a price-to-earnings ratio of 12.4 and a price-to-free cash flow ratio of 11.6, each the lowest in the previous five years. That suggests the stock price already has these issues factored in. For that reason, investors considering the stock now need not steer clear of Meta’s stock based on this latest news.