While there’s been a steep fall in the valuation of US technology shares over the last nine months, social media giant Meta has been hit harder than most. Its share price has dropped by 60% over the last year, almost three times the 21% fall in the Nasdaq 100 technology sector index.
The owner of the Facebook and Instagram platforms has been punished for a stream of bad news. This includes the announcement of the first ever drop in Facebook daily user numbers in February which wiped $230 (£197) billion off the company’s market value, a record for a US firm. It was followed by Meta’s first ever quarterly fall in revenue.
Despite the fall in share price, Meta has delivered an annual return of 24% to shareholders over the last 10 years, according to Morningstar, although it has not historically paid a dividend.
Second quarter fall in revenue and profit
Meta announced revenue of $29 (£25) billion for the second quarter. It marks a year-on-year fall of 1% which it attributed to a downturn in advertising spending due to both the challenging economic environment and adverse foreign currency movements.
There was better news on daily active user numbers (DAUs), with Facebook recording a 3% increase year-on-year. After the fall in DAUs in the fourth quarter of 2021, two consecutive quarters of growth in Facebook users came as some relief to shareholders.
However, year-on-year operating margin slumped from 43% to 29% in the second quarter, partly due to an increase in headcount as the Meta expands its artificial intelligence operations. This led to a year-on-year fall in profit from $10.4 (£8.8) billion to $6.7 (£5.7) billion, a decrease of over a third.
David Wehner, Meta’s chief financial officer, viewed prospects for the third quarter as flat at best with a top-end revenue forecast of $28.5 (£24.4) billion. He commented: “This outlook reflects a continuation of the weak advertising demand environment we experienced throughout the second quarter, which we believe is being driven by broader macroeconomic uncertainty.”
Outlook for Meta shares
Looking forward, Meta is likely to face headwinds to maintain its revenue growth of the last few years. The economic downturn will continue to put pressure on advertising budgets as companies grapple with high inflation and a fall in consumer spending.
Meta also faces a challenge to maintain its social media presence in the face of the popularity of Snapchat and Tiktok among younger users. Apple’s new privacy settings have also reduced the opportunity for targeted advertising.
Meta hopes that its investment in the Metaverse will pay dividends as the virtual reality and artificial intelligence markets are forecast to grow significantly over the next decade.
According to WSJ Markets, the analysts’ 12-month share price forecasts range from $150 to $292. This suggests potential upside from the current share price of $162.
Let’s take a closer look at what you need to know about buying and selling Meta shares.
Investing in share-based investments can be a good way to produce higher returns than cash-based investments. However, your capital is at risk, your investment can go down as well as up, and you may not get your money back. If you are unsure as to the right investment, you should seek financial advice.
How to buy Meta shares
Before you decide to open an account, you should set your investment goals, including the amount you wish to invest, the length of time you plan to invest for, whether you are comfortable with the risks involved and whether you can afford to lose some, or all, of the money.
If you are looking to buy Meta shares, the following steps will guide you through the process:
1. Open a trading account
Whether you’re an experienced share trader, or a beginner, you’ll need to open an account with a trading platform.
It’s worth taking the time to review the costs involved - most, but not all, platforms charge a share trading fee and some may also charge an annual platform fee for holding shares.
There are a variety of trading platforms available, from online DIY platforms such as Hargreaves Lansdown, AJ Bell and interactive investor, to app-based platforms such as eToro and Trading212.
2. Where is Meta traded?
The ticker symbol for Meta Inc is META. Meta is traded on the technology-focused Nasdaq exchange in the US which is open for trading from 9.30am to 4pm (Eastern time) from Monday to Friday.
Most trading platforms allow you to purchase US shares. You will be charged a foreign exchange fee (typically around 1%, but may range from 0.15% to 1.5% depending on your platform). Many platforms also charge a slightly higher trading fee for buying US shares.
If you plan to trade US shares regularly, it’s worth looking at the best trading platforms as their fees can vary significantly. A small number of trading platforms, such as IG, allow you to hold your account in US dollars which may reduce the foreign exchange you have to pay.
You will be requested to complete a W-8BEN form which allows you to benefit from a reduction in withholding tax from 30% to 15% for qualifying US dividends and interest.
You will also have a foreign exchange exposure if you hold US shares. If the pound weakens against the dollar, your shares will be worth more in pounds sterling (and vice versa).
As with UK shares, any profit on US shares will be subject to Capital Gains Tax, subject to your annual allowance (currently £12,300). You will not have to pay Capital Gains Tax if you hold the shares in an Individual Savings Account or Self-Invested Personal Pension.
3. Do your research
To find out more about Meta, visit the company’s investor relations page.
It’s also worth comparing Meta’s valuation to other comparable US technology companies. One way is to look at the relative price-earnings ratios - shares trading on a high price-earnings ratio have high expectations of significant growth in the future.
Another useful research tool is brokers’ 12-month share price forecasts, which are available on financial websites. There are currently over 50 brokers following Meta shares, and their price forecasts give an indication of the upside and downside risk of the Meta share price over the next year.
4. Should you invest on a monthly basis or as a lump sum?
People tend to buy shares either as a lump sum purchase, or drip-feed their investment on a monthly basis over time.
Monthly investing is often referred to as a means of ‘pound cost averaging’, whereby making regular contributions helps to smooth out the highs and lows of the stock market. This provides some protection if the share price falls after you have bought shares, as you will effectively invest at the average share price over the whole period.
However, drip-feeding your investment may sacrifice capital growth if the share price is rising and you may also pay more in share trading fees.
5. Place your order
Once you’re ready to buy shares in Meta, log in to your trading account. Type in the ticker symbol META and the number of shares you want to buy, or the amount of money you want to invest.
Many platforms also allow you to add a ‘stop loss’ after you’ve bought the shares, which allows you to limit your losses if the share price falls. For example, if you buy shares at £100, and set a stop loss of £90, your shares would be sold if the share price falls below £90, limiting your potential loss to 10%.
6. Monitor Meta’s performance
Whether you hold shares in just a few, or many, companies, you should review how your shares are performing on a regular basis.
Monitoring your portfolio allows you to make any necessary adjustments, whether buying additional shares, or selling part of your holding.
How to sell your Meta shares
When you want to sell your Meta shares, log in to your trading platform, type in the ticker symbol (META) and select the number of shares you want to sell.
If you’ve made a profit, you may have to pay Capital Gains Tax (CGT) on the sale of your shares. However, as mentioned earlier, this is not the case for tax-exempt wrappers such as Individual Savings Accounts.
How to invest in Meta indirectly
You may make a profit if you invest in Meta shares, however, holding shares in an individual company is higher risk than investing in a wide range of shares. A diversified portfolio should also reduce volatility.
One option is to invest indirectly in Meta by investing in a fund, investment trust or exchange-traded fund (ETF) that holds Meta shares, amongst others. These products provide a ready-made portfolio of shares in a number of different companies.
There is a wide range of options, including global and US funds and investment trusts, together with ETFs that track the S&P 500 index. However, you will pay an annual management fee for holding these products.