Want to Buy Meta Platforms Stock? Be Prepared for a Bumpy Ride

Meta Platforms generated good revenue growth last quarter, but its earnings are still down through through the first half of 2023.

Meta Platforms (META -1.33%) has benefited from increased ad activity on its platform. The company has been delivering some improved growth numbers of late, and investors have become bullish on the tech stock this year. Shares of the company are up almost 160% year to date.

But before you think about jumping on this bandwagon, you should prepare yourself for some volatility in the future.
The metaverse will be a drag on earnings for years
The big problem with Meta always leads back to the metaverse and its Reality Labs business. It doesn't generate much money, and it may never be a significant part of the company's operations. So far this year, the company's Family of Apps segment, which includes popular social media apps Facebook, Instagram, and WhatsApp, has generated over $60 billion in revenue. Reality Labs, by comparison, has brought in $616 million.

That might seem reasonable for a new business, but consider that it has also incurred $7.7 billion of losses in the same period. Meanwhile, the Family of Apps business, which posted $24.4 billion in profit, has allowed Meta Platforms to remain in the black. But on a year-over-year basis, overall operating income of $16.6 billion is down 2%.

And this is with the company's core business doing well. Should its core operations struggle, the bottom line could seriously falter. And investors shouldn't forget the company continually warns that operating losses from Reality Labs will "increase meaningfully year-over-year due to our ongoing product development efforts."

Meta Platforms could make for a volatile investment
If not for Reality Labs, Meta's business would be promising. But as long as that's going to be a key part of its growth strategy, investors should brace for volatility. Meta's growth rate jumped last quarter, but it still faces significant competition like TikTok. And if its Family of Apps business can't generate earnings growth at a faster rate than Reality Labs is incurring losses, the sell-off the stock saw in 2022 could return.

Meta is a risky stock to be holding with its valuation at these levels. and it will require the company's Family of Apps business to be firing on all cylinders for it to continue to draw in growth investors. A big test will come later this month when the company reports its latest round of earnings