Facebook, which changed its name to Meta Platforms in 2021, has reported massive business growth since going public in 2012. The social media giant generated nearly $118 billion in revenues in 2021, up from about $5 billion in 2012, representing an annual growth rate of more than 40 percent. But growth has slowed in 2022, as the company grapples with changes to Apple’s privacy settings, competition from TikTok and a slowdown in advertising spending.
The company is spending heavily on new investments around the Metaverse, which may not pay off for years, if at all. But still, the company boasts more users than any other social network and its core business is extremely profitable.
If you’re considering buying shares of Meta stock, here’s how to do it and what you’ll need to know before you decide.
1. Analyze Meta and its financials
Analyzing a company’s competitive position and financials is probably the single hardest part of buying the stock, but it’s also the most important. The best place to begin is with the company’s Form 10-K, which is the annual report that all publicly traded companies must file with the SEC.
The 10-K can help you understand a lot about the company:
- how it makes money and how much
- its assets and liabilities
- its profitability trend over time
- the competitive landscape
- the various risks faced by the business
- the management team and how they’re incentivized
The annual report is a great first step at finding out about the company, but you’ll want to do more than this. You’ll want to study what other companies are doing to compete, because it’s important to have a broader perspective on the industry.
For example, while Meta is focused heavily on its family of apps, which include Facebook, Instagram and WhatsApp, it competes for attention with a variety of entertainment products. Social networks such as Twitter, TikTok, LinkedIn and Snapchat are the company’s most obvious competitors, but other platforms such as Netflix and Disney+ also compete for people’s attention. For now, Meta’s hold on social media has been difficult to break and the company commands a significant portion of online ad dollars, along with Alphabet’s Google and Amazon. But social media is so lucrative that Meta may continue to attract lots of competition.
2. Does Meta make sense in your portfolio?
Meta is a well-positioned and growing company that generates enormous amounts of cash flow, making it a potential investment for many portfolios. But the company has come under fire for misinformation on its Facebook platform and potential abuses of its market position. Some have even called for the company to be broken up. Now, the company faces slowing growth and investor questions about spending related to the development of the Metaverse. These are risks you’ll need to understand before making an investment.
So you’ll want to consider the following questions:
- Do you understand the business and its future prospects?
- Will you be able to continue analyzing the business and industry as it grows?
- Given the stock’s volatility, will you be able to hold on if it drops or even buy more?
- Do you have a sense of what the company is worth and how that compares to the current market value?
- Meta doesn’t pay a dividend – do you need that in a stock?
3. How much can you afford to invest?
How much you can afford to invest has less to do with Meta than with your own personal financial situation. Stocks can be volatile. So, to give your investment time to work out, you’ll likely want to be able to leave the money in the stock for at least three-to-five years. That means you should be able to live without the money for at least that length of time.
Committing to holding the stock for three-to-five years is important. You’d hate to have to sell the stock when it’s near a low only to watch it rebound much higher after you exited the position. By sticking to a long-term plan, you’ll be able to ride out the ups and downs of the stock.
If you’re investing in individual stocks, you’ll likely want to keep the percentage of any single position between 3 and 5 percent. This way you’re not heavily exposed to one investment breaking your portfolio. If the stock has more business risk, then you might choose an even lower percentage than this range.
In addition, rather than just committing a one-time sum of money to the stock, consider how you can add money to your position over time.
4. Open a brokerage account
While opening a brokerage account may sound like a difficult step, it’s actually quite easy, and you can have everything set up in 15 minutes or so.
You’ll want to select a broker that caters to your needs. Are you trading often or infrequently? Do you need a high level of service or research? Is cost the most important factor for you? If you’re buying a few stocks but investing mainly in funds, then a number of brokers specialize in offering commission-free trading for those funds.
After you’ve opened your account, you’ll want to fund it with enough money to buy Meta stock. But you can take care of this step completely online, and it’s simple.
With Meta shares trading around $220 per share as of May 2022, you may not have enough money to buy an entire share. Several brokers, including Charles Schwab and Fidelity, have started offering fractional shares to help with this problem, allowing you to invest with just a few dollars.
5. Buy Meta stock
Once you’ve decided to buy Meta stock and you’ve opened and funded your brokerage account, you can set up your order. Use the company’s ticker symbol – FB – when you input your order. (Note that the company plans to change its ticker symbol to META in the first half of 2022.)
Most brokers have a “trade ticket” at the bottom of each page, so you can enter your order. On the broker’s order form, you’ll input the symbol and how many shares you can afford, or the amount you’d like to invest if you’re buying fractional shares. Then you’ll enter the order type: market or limit. A market order will buy the stock at whatever the current price is, while the limit order will execute only if the stock reaches the price that you specify.
If you’re buying just a few shares then you’re likely best off sticking with a market order. Even if you pay a little bit more now for a market order, it won’t affect the long-term performance much, if the stock continues to perform well.
Buying a stock can be exciting, but success won’t happen overnight. Investors should take a long-term perspective on their investments, and they should consider taking advantage of dollar-cost averaging, if they believe in the stock for the long haul.
With dollar-cost averaging, investors add a set amount of money to their position over time, and that really helps when a stock declines, allowing them to purchase more shares. High-flying stocks can dip from time-to-time, so the strategy can help you achieve a lower buy price and higher overall profits.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.