Business Description:
Slowing down of MAP and DAP growth with DAU of Facebook going down for the first time
Average Revenue Per User (ARPU) still increasing
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:
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%
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%
Conclusion
Facebook is undervalued and a BUY for the long-term based on current business
