After a powerful rally in 2023 so far, Meta Platforms (NASDAQ:META) stock could be due for a pullback. The shares appear to be over-valued, and conflict with regulators in multiple regions of the world will likely be problematic for Meta Platforms.
Meta Platforms CEO Mark Zuckerberg declared that 2023 will be a “year of efficiency” for his company. However, perhaps he ought to make it a “year of compliance” with lawmakers and political decision-makers.
Eager investors seem to be ignoring Meta Platforms’ tendency to fun afoul of local laws and guidelines. In the final analysis, it’s wise to maintain a small share position in Meta Platforms, or none at all.
META Stock Is Vulnerable as Legal Penalties Add Up
Value-focused investors should observe that Meta Platforms has a GAAP trailing-12-month price-to-earnings (P/E) ratio of 33.88x. This is much higher than the sector median P/E ratio of 17.71x. Thus, it’s reasonable to conclude that META stock is richly valued and vulnerable to a pullback.
Meta Platforms’ eager bulls may be pricing in a potential U.S. ban on TikTok, but there’s no guarantee that this will happen. What they should pay closer attention to is Meta Platforms’ various regulatory problems.
In a well-documented example, Ireland’s Data Protection Commissioner (DPC) recently fined Meta Platforms 1.2 billion euros (equivalent to $1.3 billion) for data-privacy rule violations. Meta Platforms plans to appeal this ruling, but ask yourself: Do you really want to invest in a company that’s waging war against government entities?
Meta Platforms Faces Multiple Regulatory Battles
Granted, there is an instance of Meta Platforms “playing nice” with regulators. Per Reuters, the company “offered to limit its use of other businesses’ advertising data for its Facebook Marketplace service” to appease Britain’s Competition and Markets Authority (CMA).
Yet, that example is the exception, not the rule. Famously, U.S. regulators slapped Meta Platforms with a $5 billion fine over privacy protection violations in 2019. Clearly, Meta Platforms isn’t only battling with the DPC.
Per The Wall Street Journal, the Federal Trade Commission (FTC) is attempting to “impose new sanctions” on Meta Platforms “for alleged privacy violations.” Meanwhile, Russian authorities have fined WhatsApp (which is owned by Meta Platforms) for “not deleting banned content,” Reuters reports.
Additionally, Meta Platforms is threatening to remove its news content in California over a proposed bill that would require technology companies to pay certain news providers. Once again, it appears that Meta Platforms’ management wants to fight battles in multiple regions. It’s a strategy that could prove to be costly for Meta Platforms over the long run.
A Big Risk for META Stock
Shares of Meta Platforms have gained a lot of value this year so far. This raises valuation concerns, and Meta Platforms’ evident policy of battling against government entities could weigh on the stock.
Therefore, I’m not recommending buying META stock now. It’s a good idea to keep tabs on Meta Platforms’ various legal battles for fresh updates. At the same time, any share position in Meta Platforms should be kept to a minimum. Moreover, it’s fine if you don’t want to invest in the company at all.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.
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