1. Meta Platforms, Inc. (NASDAQ:META)
Value of AQR Capital Management‘s 13F Position: $658 million
Number of Hedge Fund Shareholders: 204
Closing out the list of stocks that Cliff Asness was relentlessly buying during Q1 is Meta Platforms, Inc. (NASDAQ:META). While many other hedge funds have been zigging their way out of their META investments (check out Hedge Funds Brace for Impact: Top 10 Stocks to Dump Now as an example), Asness was zagging during the first quarter, growing his stake in Meta by another 47% to just under 3 million shares.
It’s not surprising that hedge funds have been bailing on Meta Platforms, Inc. (NASDAQ:META), given the extreme challenges the company is facing, which has forced it to scale back hiring. Meta’s revenue growth has slowed to a relative crawl at just 7% year-over-year in Q1 and its metaverse initiative has been nothing short of a disaster thus far, with delayed or canceled products and massive losses coming out of that division. The unrelenting rise of TikTok is also threatening the longer-term success of both Facebook and Instagram.
Polen Capital took a look at the challenges and competition being faced by Meta Platforms, Inc. (NASDAQ:META) in its Q1 2022 investor letter:
“What Would You Pay for the World’s Largest Communication and Entertainment Platform? How Does 5x Earnings Sound?
Meta Platforms also had solid, if not slightly lower-than-expected revenue growth last quarter but guided to a significant slowdown in revenue growth for 1Q 2022. Meta called out TikTok, a competitor for people’s time and attention, seeming to imply it as one of the factors causing the growth slowdown. This appeared to stoke fears that the company’s user engagement and value proposition was eroding for its users and marketers and subsequently would lead to lower advertising revenue growth and market share loss.
We do not doubt that TikTok is taking time and attention away from many forms of digital media, core Facebook and Instagram included. That said, we believe TikTok has mostly expanded the pie. Meta’s user engagement has been stable, even on the very mature core Facebook app. Our research shows that most of the growth headwinds are more likely attributable to a combination of factors. These factors include a preference for short-form video while spending time on the platform (Facebook and Instagram Reels), which is not monetized effectively yet, a COVID-19 pull-forward impact like Netflix, and changes to Apple’s (AAPL) iOS operating system.
More specifically, the changes to iOS make it more difficult for Facebook and Instagram to measure certain types of ads accurately, at least for now. Meta has quantified that the Apple impact as roughly a $10 billion revenue headwind for fiscal 2022, or approximately 7% of total revenue. This is a bit larger than we would have expected, and it is taking longer than expected for Facebook to develop with their own measurement tools. But, excluding the Apple impact alone, Facebook would be growing close to what we would have expected in a more normal environment. Although it could take some time to alleviate, we believe the Apple impact will prove temporary, and we continue to monitor engagement trends on Facebook and Instagram from competitors like TikTok…” (Click here to see the full text)
For more on the latest trades made by some of the biggest hedge fund managers in the world, check out 10 Stocks You Should Sell in 2022 According to Billionaire Dan Loeb and 11 Best Undervalued Stocks to Buy Now.
Disclosure: None.
