Meta stock is down 66%! Time to buy?

$Meta Platforms(META.US)$
Uncertain future
Some investors think the company is a screaming bargain at these levels. After all, the price-to-earnings ratio is just 11. That certainly catches my eye.
But I see a couple of problems here. First, those earnings are historical. I am not sure things will look so rosy in future. Advertising spend is falling as the recession bites, while Meta is ploughing billions of dollars into its unproven metaverse platform.
The company has tried to rein in costs by firing thousands of staff. That may help, but it further underlines the growing mismatch between the company’s cost base and its revenues. In the most recent quarter, revenues fell 4% compared to the same period last year, while costs surged 19%.
There is also the risk of user numbers declining. Over time, I expect rivals like TikTok to continue attracting younger users that might once have used Facebook. That could lead to lower revenues and profits for Meta. Then again, Facebook did actually see the number of daily active users in September grow 3% compared to last year. Meta also owns popular apps like Whatsapp and Instagram. They could help it grow even if Facebook declines in popularity.

Cost concerns
What really makes me nervous about Meta right now, though, is its cost base.
Saying that costs and expenses rose 19% compared to the same quarter last year already sounds bad. But looking at what that means for profitability brings home why a bloated cost base can hurt a business so badly.
Costs and expenses in the quarter rose from $18.6bn last year to $22.1bn this time around. Combined with the revenue decline, that meant income from operations fell from $10.4bn to $5.7bn — a 47% drop. That drove a fall in net income of 52%.
With Meta pouring billions of dollars into a metaverse platform that seems to have few fans outside the company, expenses could continue to be substantial.
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