The Investment Thesis
Big Tech YTD Stock Price
Meta Platforms, Inc.NASDAQ: META) was slaughtered after its FQ3’22 earnings call, with a -73.74% YTD decline versus the broader market’s -22.48% decline in the S&P 500 Index. Where is it others such as Amazon (AMZN), Alphabet (GOOG)(GOOGLE), and Microsoft (MSFT) may have experienced more comprehensive downloads so far, the rebellion is not over with Apple (AAPL) similarly loses -23.70% of its value at the same time. The most painful time is not here yet.
Nevertheless, we conclude that the long-term direction of the Meta remains strong, given the promising signs we are seeing so far. We will discuss more below.
1. Monetization Improves by Leaps and Bounds
Meta continues to report improved revenue in its Instagram Reels, which so far has more than $1 billion in annual revenue. Its Facebook platform is also performing well, given its combined revenue of $3B. The company is also growing consumption of Reels with an impressive 50% growth compared to six months ago, with 140B reels being played daily across Facebook and Instagram.
In addition, Meta has partnered with Salesforce (CRM) to use WhatsApp/Messenger/Instagram Direct as pay/click ads for online businesses. WhatsApp alone boasts an impressive 80% YoY growth to reach $1.5 billion in operating volume, while adding a total of $9 billion in annual revenue from the three messaging platforms. Furthermore, we expect its JioMart model on WhatsApp to be rapidly replicated globally as well, with huge potential in building a business/e-commerce/payment ecosystem over the next few years on WhatsApp/ Family of Apps. Why not?
Additionally, App Family engagement remains strong, with 3.7B monthly users. WhatsApp boasts only 2B daily active users, while Facebook reaches almost 2B daily users and Instagram reports 2B monthly users. We don’t need a crystal ball to guess that Meta monetization will actually be very successful, with the impact of the exit from Twitter (TWTR) and the potential ban of TikTok in the United States.
2. Investments are Well Balanced & Strong
R&D expenses For income
On LTM, Meta spent 27.4% of its revenues on R&D efforts, which instead of false perception of only Metaverse, a greater focus on working across for the Application Family, Reality Labs, and marketing / sales / G&A expenses. The company is clearly aggressively developing its AI capabilities, ads, click-to-message ads, and Reels against TikTok. Aggressiveness in R&D efforts is obviously of great importance, given AAPL’s $10 billion privacy changes. In addition, 82% of its FQ3’22 costs are focused on the development and operation of the Application Family. Based on the table above, it is clear that Meta is not spending much on its R&D efforts compared to other social media companies such as TWTR and Snap ( SNAP ).
While Meta has also guided for additional growth in Reality of Labs spending for FY2023, this money will be well spent, as it ensures Meta’s leadership in the fiercely competitive market. You can check out our previous analysis here: Apple Vs. Meta: Mixed Reality War. Even Nvidia ( NVDA ) is investing heavily in Omniverse, pouring an easy 21.22% of its revenues into R&D efforts so far. We continue to believe in Zuckerberg’s passion and the vision of Metaverse, especially after witnessing the very promising photorealistic avatars and face tracking that the company recently presented at Connect 2022. the opening of the Metaverse and, as a result, died a tragic death in the midst of these sheepish horrors.
The application in Metaverse is much broader than just online games and world building, such as Roblox (RBLX) or Horizon World. As more large tech companies embrace post-pandemic remote work, we expect these capabilities to include B2B applications for virtual AI training, hologram video calls, large-scale industrial/design/engineering/architecture simulations, discoveries revolutionize science, and enhance 3D workflow developments. global Meta will get there sooner than expected, thanks to its extensive partnerships with MSFT, Adobe ( ADBE ), Autodesk ( ADSK ), Zoom ( ZM ), Accenture ( ACN ), and others. Don’t be as short-sighted as Mr. Market.
Cost of Capital for Cash from Operations
In addition, Meta’s capital expenditure investments in data centers and Reality Labs are so far still moderate, compared to other Cloud / e-commerce peers like AMZN, although naturally higher compared to GOOG and MSFT.
Meanwhile, we are not at all worried about this level of investment, as the company continues to report strong FCF generation of $26.4 billion in LTM, versus AMZN’s -$26.32 billion. , $62.54 billion GOOG, and $63.33 billion MSFT during the same period. time Even with such impressive numbers, the latter two -42.45% and -36% YTD stocks respectively could not escape the ongoing massacre. Tragic, because we expect Meta’s ambitious expansion during a recession to pay off very well, once the macroeconomics improves and market sentiment improves.
3. Its FCF Profitability Will Improve
Expected to report Meta adj. come and adj. Between FY2019 and FY2025 net revenue growth at a CAGR of 13.9% and 3.6% respectively. And as can be seen by the collapse of its stock price, the company’s future execution is now down a massive -22.35%. I guess some downside is warranted, as its EBIT/net income margins are expected to deteriorate further, from 41%/34.8% in FY2019, 39.6%/33.4% in FY2021, and up to 24.1%. / 19.7% in FY2025.
Thus, naturally declining Meta’s FY2025 EPS of $12.12 at a CAGR of -10.1% over the next four years, versus FY2019 EPS of $8.56 at a pre-pandemic CAGR of 26 ,5% and FY2021% EPS of 26.5% explains the pandemic FY2021% GRCA 2677%. .
Meta, on the other hand, is expected to report 87.08% in FCF generation in FY2024, once costs normalize and ad dollars are fully recovered. Investors should also note the steady improvement in its FCF profitability, from margins of 30% in FY2019, 33.2% in FY2021, and finally up to 39.7% in FY2025. Thus, reducing the company’s need for debt consolidation from FY2024 onwards.
And in case anyone has forgotten, AAPL recently reported $98.95 billion in long-term debt and $2.93 billion in annual interest expense during its recent FQ4’22 earnings call. These numbers have increased by 7.78% and 6.15% since FQ3’19, while its net liabilities increase by 62.57% to -$36.62 billion and cash/short term investments at the same time decrease from -51.96%. Thus, AAPL’s over-reliance on debt and lack of liquidity over the past three years indicates.
So really, why should anyone break the $10 billion in Meta loans reported in FQ3’22? Especially, because of its impressive FCF adjusted CAGR of 19.3% between FY2019 and FY2025. In the meantime, we encourage you to read our previous article on Meta, which will help you better understand market positions and opportunities.
- Meta Platforms: Absolute Killing – Never Seen
So, Is Meta Stock A Buy?Sell or Buy?
Meta Values 10Y EV/Earnings and P/E
Meta is currently trading at an EV/NTM earnings of 1.90x and an NTM P/E of 12.35x, an all-time 10Y low. The stock is trading at $88.91, -74.87% off its 52 week high of $353.83, which is close to the 52 week low of $88.41. Furthermore, consensus estimates for Meta’s prospects are bullish due to their $153.85 price target and a 73.04% upside from current prices.
Meta 10Y Stock Price
It is clear that there is no clear ground and support here. The Meta stock fell sharply by -31.51% after its FQ3’22 earnings call, which was greatly exacerbated by pessimistic market sentiment.
The latter is attributed to the unfortunate reversal of the Feds’ aforementioned pivot after the Bank of Canada’s earlier-than-expected 50 basis point hike. Early indications already point to a similarly high inflation rate for October, ahead of the painful October and November CPI/PPI results. With 48% of analysts expecting another 75 basis points increase at the Fed’s December meeting, we can be sure of more pain. Terminal rates are already being raised to 5.14% for June 2023, indicating another 50 basis point increase for the Feds meeting in February 2023.
With Meta management’s bleak guidance through 2023, it’s easy to assume that the Meta may drop further to $70 within the next couple of months. Bottom line investors would be well advised to wait a little longer and load up during that time. However, we choose to break these levels, because most of the pessimism is already built into us. Naturally, one should be prepared to have some moderate volatility ahead, for portfolio growth over the next decade.