3. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Shareholders: 188
Meta Platforms, Inc. (NASDAQ:META) has a clear vision for how the metaverse could revolutionize many aspects of life and is spending (and losing) billions of dollars to bring that vision to reality. The company bought Oculus for $2 billion way back in 2014 with a clear eye on the importance of VR headsets for experiencing virtual worlds.
Meta has since launched Horizon Worlds, its free-to-play VR experience that shows off an early example of what future metaverse experiences could be like. The game is a cross between Roblox-style experiences and a social MMO, though the rudimentary graphics have failed to inspire much interest as yet. Meta hopes to improve the graphical fidelity with the release of a more powerful headset, which could also include sensors and cameras that accurately reflect real-world expressions on the player’s in-game avatar.
Meta Platforms, Inc. (NASDAQ:META) has experienced a hedge fund exodus in recent quarters, losing a net total of 32% of its former smart money shareholders over the past year. Other funds have looked at the extreme weakness in META shares (down 60% this year) as a buying opportunity, as evidenced by Jim Simons’ Renaissance Technologies upping its stake in Meta by 83% during Q2 to 5.49 million shares.
Harding Loevner also believes Meta Platforms, Inc. (NASDAQ:META)’s shares are worth buying at current levels, given the strong cash flow generated by the company, as it shared in its Q2 2022 investor letter:
“Any discussion of Q2 underperformance is incomplete without addressing two FAANG stocks. We do not share the market’s concerns about growth prospects at Facebook, Meta Platforms, Inc. (NASDAQ:META)’s core social media platform. Yes, growth is moderating as the business matures. There is also work to be done on technical workarounds to repair the damage to earnings growth from privacy changes implemented by Apple that impair Facebook’s ad targeting to iPhone users. But Meta’s digital advertising model still generates an extremely attractive rate of return on investment for the merchants it serves. Once its Apple workarounds are complete, we expect growth through market share gains and addressable market expansion to resume. Despite all the hyped new initiatives and skirmishes with rivals, Facebook remains an immensely free cash flow-generative business with huge advantages in putting its cash to work developing direct consumer relationships and monetizing them through targeted advertising. CEO Mark Zuckerberg has noted on multiple occasions how the company’s returns from its significant investments in AI have been even higher than it expected, in terms of driving higher revenue and lower costs. We view Meta shares as a bargain today, trading at 15 times earnings after over US$10 billion in annual expenditures on its Metaverse investments.”
