One of the biggest news stories to come out in markets over the past few days has been the change of branding for Facebook (NASDAQ:FB). The social media giant announced a name change to become Meta. The official stock ticker will change to MVRS at the start of December, but in terms of the branding, Facebook has already flipped to being Meta. I think the change reflects a new outlook for the business, but I’m not sure Facebook shares are a screaming buy right now. Here’s why.
The growth story
For the purpose of this article, I’ll continue to refer to the firm as Facebook. The core business started out as a social network, and grew to enormous size. In Q1 2021, the platform had an estimated 2.89bn monthly active users.
It has grown to encompass a broader technology entity over the past few years. This has been driven by acquisitions, with the most notable being WhatsApp and Instagram. As such, the control that it has over the internet in general is quite something.
The bulk of revenue for the business comes from advertising. As someone who has used many of the platforms for several years, the push for more adverts in different places has been clear. This has allowed Facebook shares to move higher over the long term, due to the firm beating expectations.
In the latest results for Q3, revenue came in at $28.2bn, up 33% on the same quarter last year. Net income for the quarter was $9.1bn, up 17% on the same period in 2020. It’s impressive to see growth continuing over time.
Changing to Meta
The latest news is that the rebranding is being done to widen the scope for Facebook going forward. This vision was explained by company chief Mark Zuckerberg, He said that “we are seen as a social media company, but in our DNA we are a company that builds technology to connect people, and the metaverse is the next frontier just like social networking was when we got started.”
The metaverse, shortened to meta, is where Facebook think the future lies. Virtual reality could be the next big thing. In fact, in the latest results, Facebook announced it was splitting its Reality Labs arm into a standalone reporting segment. Over the next year, $10bn will be invested in Reality Labs and VR in general by the business.
After Facebook shares made fresh yearly highs in September, progress has stalled. The results in October didn’t provide a material boost. The shares are up 22% over one year, but down around 15% from the highs in September. Recent concerns around a toxic working culture haven’t helped.
I’m not buying Facebook shares
From my point of view, I wouldn’t buy Facebook shares with or without the latest news. Without the rebranding, I think Facebook growth would stagnate as increasing users becomes harder and harder. With the rebranding, I think it spells high investment for years to come before any material boost to profitability is seen.
In both cases, I don’t see how I’ll make a good return from buying Facebook shares now. I could be wrong, and the metaverse could be the future for all of us. But until I see convincing evidence of this, I think I can find better places to invest.
Jonathansmith1 has no position in any firm mentioned. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Facebook. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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