Meta Stock Analysis


Facebook Stock Analysis

Business Description:


Facebook Stock Analysis

  • Slowing down of MAP and DAP growth with DAU of Facebook going down for the first time

  • Average Revenue Per User (ARPU) still increasing


Facebook Stock Analysis

Catalysts:

  • More people spending money on the different apps/platforms even without growth in user base

  • More ads being sold on these platforms as consumer habits changes

  • The Metaverse (if it succeeds - more of a risky bet)

  • Great balance sheet and returning cash to shareholders through share buybacks


Risks:

  • Anti-trust probes and more governmental regulations

  • Competition from YouTube, TikTok, and other platforms that are more appreciated by younger people

  • Saturation of market

  • Non-core business (RL) losing a lot money

  • CEO and Founder Mark Zuckerberg holds the majority of the voting rights

  • Privacy issues leading to some companies such as Apple from restricting their ability to track user data

  • Rising interest rates generally not good for growth stocks


Financial Analysis:


Facebook Stock Analysis

Valuations:

  • My personal Biases:

  • Previously invested in the company in 2018 and sold in 2019


  • Assumptions:

  • Revenue growth of 20% per year in 2022 and 2023 and 10% per in 2024-2026 for the Family of Apps business segment

  • Revenue growth of 50% per year in 2022-2026 for the Reality Labs segment

  • Operating margin of 45% for the FA business

  • Operating loss margin of 15% for the RL business

  • Net income will be 80% of the operating income

  • Free Cash Flow (FCF) 5% more than the net income

  • Discount Rate of 10% because of the great balance sheet

  • Terminal Growth Rate of 3%

  • Margin of safety of 20%


Facebook Stock Analysis

  • Exit Multiples based on P/FCF Ratio (15-45 in the last 7 years)

  • Sales 20% higher in bull case and 20% lower in bear case

  • Shares outstanding lowered by 10%

Facebook Stock Analysis


Conclusion

  • Facebook is undervalued and a BUY for the long-term based on current business


Facebook Stock Analysis


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