• Andres Chocron

Meta Platforms Stock Analysis w/ DCF included

What hasnt been said about Facebook or Meta platforms? Since it dropped over 20% in a single day it appears as if everybody became an expert and saw it coming! And I know the last earnings where not perfect, but that bad? Is there something to it or is the market just irrational in the short term?

Lets take a look at the numbers and if you dont want to read, just go check out the Youtube video below or just search for Aconomics on your favorite Podcast app (including Spotify) and listen to it. And if you came for the DCF model, just scroll, click the link and make a copy for yourself.

Also, if you find this useful, please consider registering and maybe supporting Aconomics! I put in a lot of work to provide value and it would help the community grow.

Now, lets get to it.

Meta Platforms Stock Analysis

  1. Meta Platforms Today

  2. Meta Financials

  3. Meta DCF Model

  4. Price targets


Meta Platforms (Facebook) Today

What a decline we saw from Meta after their earnings where released. Facebook earnings managed to give Mark Zuckerberg a world record for the biggest drop in value a stock has ever experienced in just one session (over 200 billion intraday!)

But what do we actually know about the company today? And, why is it important to analyze the situation?

  1. Investors are skittish now. With high inflation, FED tightening and and overall Bear sentiment, panic selling is very common.

  2. The company is shifting primary focus, hence the name swith, and that increases risk.

  3. TikTok and its implications.

  4. Most people just dont like Mark Zuckerberg apparently.

A few things I like in times of uncertainty is that opportunities arise, so I wanted to see for myself if this is the case with Meta Platforms. Also, if you look at the table above, Is there a company that didnt recover and continue to grow? I wish I would have bought on each of those dips.

Meta Platforms Financials

Income Statement Meta Platforms growth

Meta Platforms DCF Model

Meta Platforms Price targets

Meta platforms Facebook price targets

On the video

Hello, everybody. Welcome back to Aconomics today. We're going to talk about why Facebook or Meta Platforms crashed. If it's a good time to invest, and I'm going to give you a DCF models for you to play with, I'm going to show it here at the end of this video, after we go over everything that happened, and you can just go to the link below to the.

Two of the DCF model, or just go to economics.com and download it from there. You don't need to register, you don't need to anything, but I would really appreciate it. If you hit this like button, it helps a lot. Now let's start.

Facebook Facebook, Facebook Metapod firms. What the hell is going on in dropped almost 250 billion. I think wave $260 billion. Let's go here. We're going to go over this. These are the top drops. The they're the top crashes on a single session. And historically. Basically Facebook has been on it twice. And this last one on the 3rd of February, it was the biggest one ever with $251 billion drop.

But look at the rest, apple, Microsoft, Tesla, and Amazon. Everybody I think would go back. In any of these dips. So when I saw this, I was like, okay, let's go into the numbers. Let's see what's going on. Let's see why, because I love Facebook and I don't really care much about the daily ups and downs, but when I saw 26%, I had to see if maybe my analysis was wrong.

So let's do this first. Let's go to ticker and check our revenue growth on Facebook, just to the building blocks of this company, revenue went from 2016, 27.6 billion to 118 billion, almost 118 billion that's growth. That's a growth that is between 21.6% on the worst year to 54.2% on the best year and the last year, it's not the worst contrary to what one might think seeing the drop it's actually the last year they grew 37.2%. Now this brings up a question like what's the valuation of a company derived from? Is it a that if I have 10 clients and next year I have 11. But I make $10 on each, every single year, or is it better if I maintain my 10 clients, I don't grow in clients, but then I make $20 per client.

What is best from a hundred to 110 or two from a hundred to 200. And this is what I think is the problem with many valuations on Facebook. Also, let me add a lot of people don't like Mark Zuckerberg for some reason. The guy looks like a robot, he's not very extroverted. He doesn't really, talk in a friendly manner. He's not charismatic. So a lot of people hate him and with all the problems that Facebook had, they always come out on top and they're always managed to get away with it. If they did something that was not good and they have, but people don't like them.

So Facebook, Instagram messenger, whatsapp they will all continue to grow in revenue and they might not be growing that much in people, but let's go see the earnings, Shall we? Because I think it's been a little bit misunderstood. Now this was ticker. These are the earnings. Let's go to the executive overview of full year 2021 results. This is from the earnings PDF that they just published now family daily active users DAP two point 82 billion on average for December 22, 1 an increase of 8% year over year, monthly active users, active people, three point 59 billion and increase of 9% per year daily active users or one point 93.

And increase of only 5% year over year and Facebook, monthly active users, 2.91 billion, an increase of 4% per year. Ad impressions delivered across our family of apps increased by 10% year over year in 2021. And the average price per ad increased by 24% year over year. And this is why I think it's been misunderstood.

Okay. Basically this, let me highlight. Because this needs to be in red, actually in green. This is very, very important. And I'll show you what if we go and switch to the earnings presentation, because they really do a good job in showing it. We can see

that the problem that everybody fixated on was daily, active users. Doubt. So we see that in Q3 2021, they had 622 and in Q4 they had 619. So in the rest of the world, excluding us and Canada, Europe, Asia Pacific, they went down 3 million that had never happened before. That's a huge red flag.

Nobody's denying this. Also they only went up 1 million in Asia Pacific. They only went up 1 million in Europe. But they went down in US and Canada, even though here is a small part of their daily active users. If we go and check and it's page three, let's go here. If we go and check the revenue per users, look at this. Bottom is the revenue from us and Canada. So they're the smallest, but they create $15.8 billion in revenue. Now this for me is where everything hangs because I don't care if you don't grow in users, as long as you're being more productive, making more money for each users, especially when you already have billions of users, it was impossible to continue to grow and you can grow a little bit a million here, a million.

They already basically have a third of the world as users. So how much money are you making on this users? That's what, when they make, when they get to 7 billion and everybody in the world has Facebook to the company's worthless. Now it makes no sense. So how much money are they making per user? Now, this is what I like.

And we're going to talk about VR and meta platforms that I like that it's in plural in a second if we go and see the revenue $3.2 billion was made by the rest of the world compared to, and it lets go year over year to Q4 2021 in the middle here that they did 2.5 billion. Now that's 700 million more. Okay.

If we check Asia Pacific for 4.7 billion year-over-year. to 6.2 billion. That's a huge growth Europe from seven to 8.3, 1.3 billion more in the quarter. And it's a bigger difference if we go quarter by quarter, but I'm trying to be fair here and go by the biggest quarter compared to the biggest quarter

and if we check even us and Canada, they went from 13.7 billion. to 15.8 billion. So yes, they're not growing. They're not growing in users. In fact, they went a little bit down in major markets, but they're making much more per ads. Now, if we sum, if we put everything together, that's against this company first, nobody likes mark Zuckerberg. For some reason, the guy, the dude looks like a robot and he acts like a robot, perfect second, no body trusts Facebook. That's why they're rebranding they've had a very bad PR, but they still continue to grow in revenue because there's nowhere else to go.

Tiktok is video platform, short content, video platform. It competes more. It competes more with YouTube shorts than it competes with the Instagram, Instagram, it's growing their video platform, but it's still an image app. Facebook is huge everywhere in the world, but they're still not making money per user in the rest of the world.

So there's a lot of things to grow here. The rest of the world, mind you is basically all of south America. All of africa And they don't clarify which countries in Asia Pacific are included in which one's not, but just with south America and Africa, it's a huge percentage of their users that they use Facebook and Instagram and all these apps, but they still haven't gotten to a level that is comparable per user in revenue as the U S or Europe, but there are growing and we can see the number. So even if they werent investing in meta platforms and VR, I would bet that they would continue to grow double digits just by revenue and profit alone. So I think this is a little bit misunderstood.

Now let's go back and talk about VR and what they're doing. Let's go to their earnings again.

And let's see, okay. We saw this, that the family apps increased by 10% a year over a year, the impressions delivered and the price 24 year over year, we covered this. This is I think a very important point, but if we continue down, basically we see that they lost 7.1, well, 7.2, almost billion dollars on reality labs.

This is their bet for the future. They're trying to built, the structure beneath the basis, the architecture that will allow VR to exist. And I don't think anybody would disagree with the vision that VR, is going to be increasingly in our lives, either VR or AR. We're going to have goggles.

We're gonna have goggles. When we go out, we're going to go to the office via VR already. I think 40% of the engineers hired in Silicon valley are not living in California, even. So there's going to be a lot of this new industry and we're going, we're going that way. So Google is investing. Unity's huge, a lot of companies, but Facebook is targeting this and they already have the most powerful computer.

And the news came out two weeks ago. They're building the architecture that will allow us to get there. So they're investing so much that even though they made 2.2 billion, let me show you here. Cause here they made 2.274 billion, basically selling Oculus. They're just selling hardware now headsets, but they also lost 10.2 billion because they spent almost $12.5 billion developing this.

Not only is it. If we see their balance sheet, we see cash and cash equivalents and marketable securities. where $48 billion. By the end of the year, head count went up 23% to 71,970. They're investing a lot of time resources.

And a lot, a lot of capital in developing this new technology. And if you haven't used an Oculus, I understand that you don't, you, you don't see the picture. So please call your friends that are techies. Find somebody that has an Oculus and just go and spend three hours with that thing. On first, it's going to seem like it's five minutes but it's kind of changed your mind. It's an impressive piece of hardware. VR is the future whether we like it or not.

Now, this and another good point before we get to the DCF. We expected 2022 capital expenditure CapEx to be the range of 29 to $34 billion. And let me get my notes here. Because CapEx is basically gone up three X. Okay. And we're going to see that in my DCF, you can play with it.

If you go to aconomics.com or click the link below, you're going to see the DCF. And I try to be, try to implement most of what they say in the earnings and what analysts, the consensus of analysts into a DCF. I have the raw data there, so you can play with it, or you can just make your own estimations, but.

It's interesting that they're investing so much, there's so much into this new technology. They're betting so hard. And I like this, that I total expense to be in the range of 90 to 95 billion. What they're saying to us here is basically, look, we're making that ton of cash. Our revenues going through the roof over a hundred billion, we're going to get to 130 next year continue to grow because most of our users are increasing the amount they pay for ads, the ones that are outside of the U S we're investing so much.

So much in architecture, new data centers, new technology, new engineers, new, everything that we're not going to have good earnings in the next few quarters. I really admire this second. I think mark Zuckerberg, whether we like it or not has been, well, let's not say mark Zuckerberg, Facebook in general has been an excellent capital allocator.

The acquisition of WhatsApp. Everybody laughed. The acquisition of Instagram was super fast. Everybody thought 1 billion. What are you crazy huge success. The acquisition of WhatsApp, 16 billion. Everybody uses WhatsApp, maybe not in the U S that much, but the rest of the world works on WhatsApp.

And it's not like they're investing so much that they're leaving the ad business on the side. No, they're still growing on that side. They're just going to grow on this one because they have to lead the way. And I really appreciate that. I think, I think that, and just a minute here first, please. Hit the light button.

If you make it, if you made it this far, you like this video, you like the content. So just subscribe or like, hit the like button. It really helps the channel. Now, one of the things I really think would help a lot is that if mark Zuckerberg steps away from the CEO position and Sheryl Sandberg moves up, I think that would be genius move.

He can be the head of. The director, but the CEO, the public face of the company should be Sheryl Sandberg in my opinion, that would be amazing. Anyway, I think by now you understand that I'm really bullish on Facebook or meta platforms.

Let's go to a DCF model. This is my DCF model that you can download from aconomics.com or hitting the link below. If you find this useful and you want to support the channel, subscribe or go to the website, there's instructions there now.

As any DCF model, if you don't understand something, just feel free to email me or just comment below, everything is automatic. With Google finance and

-tax rate, I put at 19% tax rate, and that's almost three points above the actual tax rate this year. If we see here, effective tax rate was 16.7% this year and 12.2 the last year, but because it's been up and down and obviously they're going to invest so much that they're probably not going to pay nearly that much tax, but I want it to be super, super conservative. And I put a 19% tax rate, a

-discount rate, 9%. We don't know what's going on with the rate hikes, but if you think it's a seven, you can just change it will fix the whole model, and

-perpetual growth rate I'm saying like in five years they're going to grow 3% year over year perpetual. But what I really like about this DCF model is that you have 2 terminal value calculation.

So you have one on perpetual growth. And I also calculated the terminal value on an EBITDA exit multiple.

Now the EBITDA I used 16. Okay. Now this model, let me go back here. This model. I want to explain. Because usually my DCS model, there's not such a discrepancy between an EBITDA, exit multiple and a perpetual growth and wait for a second. Cause somebody is calling me just when I have to make a video be back in a second and we're back am.

Such a discrepancy, such a discrepancy between, the terminal volume calculated by EBITDA exit, multiple and perpetual growth. The exit multiple basically grabs that EBITDA on the last year and multiplies it by the multiple. And then you find the Present Value now, with that said, you grab a EBITDA before the capital expense is the deducted so because Facebook has such a CapEx, as we saw right now in their earnings, that I'm calculating that they're going to continue to grow.

As you can see here, there are CapEx and they're going to maintain it at such a high level for five years. obviously the DCF model of perpetual growth that grabs the unlevered free cash flow on the last year. We're deducting a lot on CapEx. So because the terminal value is one of the most important numbers on the DCF and we have two ways of calculating it, obviously there's some discrepancy and let's see it here.

I'm not going to go and explain exactly how I'd got each number, because then this video again is going to be too far, but I grabbed the consensus from the analyst that studied this company day in and day out. Now I put a lot of the raw data as well in the model. So you can come here and check it out and how some things are calculated, just because I understand that some people might not be familiar with this.

I put some examples here, so you can understand where each number comes from, but bottom line, Having to perpetual terminal to terminal value. What perpetual growth and want EBITDA exit multiple. We go here, and this is why I say there's a discrepancy between the two ways of calculating TV is one.

The stock price is 364 with 90 cents. And the other one is 539 with 53 cents. So the good thing is that in the perpetual growth valuation, we see that we have an upside of 53.9%. That's quite an upside and, and I was being very, very conservative as you can see, but go and play with the model yourself and the second one, the second market cap, the EBITDA, multiple valuation.

We see that we have an upside of 127%. That makes it the stock price, uh, 539 point 53. Like I said, if it wasn't because of huge CapEx, they would be closer together. But what I did was I put valuation, I made a medium, an average of the two stock price, 452, which gives us an upside of 90 point 74.

I did something a little bit cool on this model that I published for you guys is that if you grab here, the EV/EBITDA multiple, and you just put one, uh, you'll see how these changes. So basically, if, if they sell the company in five years for the exact amount of a EBITDA basically the upside is actually a downside of zero point 20% on average. So it's everything is related here. So if we grab the tax rate and put the actual tax rate of this year, and I think it's fairer, uh, we see that it will grow to 94 point 71, I think, with such a high CapEx, we're actually going to see a 12% tax rate. So we might see a hundred percent upside, but let's just leave it the way it is. This is the way you're going to find it. When you download it perpetual growth rate discount rate, so everything can be changed. And the price of the. It's updated automatically every time you open that Google sheet.

So I hope you like it. If it's a 90 point 74% upside, if you have different numbers or a different, um, calculation, I would love for you to come and below or comment on the website or just tweet me. And I love seeing other valuations is super interesting. Remember subscribe. If you like the content hit the like button, it helps a lot.

And if you want the model, just go to aconomics.com or hit the link below and you'll have it there for free, no need to register. Even though if you do that way. I know what people like and what people download. I would highly appreciate it as well. In any case. Thank you very much. Have a great day. See you soon.


33 views0 comments

Recent Posts

See All