META
📈 Meta reported strong Q1 results with 16% YoY revenue growth to $42.3B, driven by digital advertising, and a 37% YoY EPS increase due to operational efficiency and share buybacks.
🔬 The company is heavily investing in CapEx for AI development ($60-65B projected for 2025) and its Reality Labs segment, which currently operates at a loss but holds future potential.
⚖️ Valuation analysis suggests the stock might be slightly overvalued at current levels (around $590). A more attractive entry point could be around $450-$480, aligning with a moderate DCF valuation and offering better potential returns.
@ClaveBursatilTV:
“Now, let’s do a brief fundamental analysis and review of the results presented by Meta, the parent company of Instagram, Facebook, and WhatsApp. We can see that the vast majority of its income comes from digital advertising within its applications. It billed $41.4 billion this last quarter through digital advertising, growing at a rate of 16% year-over-year. Then it has another business segment, Reality Labs, a very new unit still in the discovery and innovation period, which had revenues of $400 million this last quarter, with a 6% year-over-year decline. Overall, the company billed $42.3 billion, a 16% year-over-year growth. In terms of profitability, observe it had a gross margin of 82%, a spectacular margin, and an operating margin of 41%. Note here a detail: the applications, digital advertising, had an operating income of almost $22 billion, while the Reality Labs segment continues to post losses. It’s a business unit where there’s heavy investment, revenues are somewhat flat, and it continues to lose money. Finally, the net profit was $16.6 billion, with a 39% margin.
Currently, the most important business for this company is digital advertising. Companies pay to place ads within its applications, and its competitive advantage is the massive global adoption of its applications. Billions of people use them.
Looking at industry metrics for digital advertising, it’s growing and taking share from traditional advertising, projected to be over 70% of total ad spend. Google and Meta are the main players, with Meta holding nearly 20% market share and growing it. Three of the top four social media platforms (Facebook, Instagram, WhatsApp) belong to Meta. The industry is expected to grow 10-14% annually.
This quarter, revenues grew 16% YoY, costs 9% YoY, leading to a 27% YoY operating income growth. Net income grew 35% YoY, and EPS 37% YoY, helped by share buybacks. Daily active users across its apps reached 3.43 billion. Ad impressions grew 5% YoY, and the average price per ad grew 10% YoY.
The company is investing heavily in CapEx and AI development, projecting $60-65 billion for 2025, which might affect free cash flow. It also repurchased $13.4 billion in shares and paid over $1 billion in dividends.
The Reality Labs segment is a big bet; it’s currently loss-making, but if it succeeds, it will significantly boost profits. If it fails and is discontinued, it would also improve margins by cutting losses.
Financially, Meta has over $70 billion in cash and equivalents and about $49 billion in debt, resulting in a net cash positive position of over $20 billion. It consistently repurchases shares.
Over the last few years, Meta has shown strong compound annual growth in revenues (15%), operating income (17%), net income (18%), EPS (20%), and free cash flow (17%). Gross margins are around 80%, operating margins 35-40%, and net margins around 35%. Free cash flow margin is about 30%.
Valuation: Current PER is 23, in line with its average. Price/Sales is 8.88, slightly above average. Price/Book is 8.15, slightly above average. Price/FCF is 28, also a bit above average.
A DCF model with a moderate growth scenario (10% annual sales growth, 25% FCF margin, 24x P/FCF multiple) yields an estimated value of $450 per share. An optimistic scenario (12% growth) gives $524. A conservative (8% growth) gives $386.
A 5-year price target using a PER multiple (estimated 2025 EPS of $27, 12% annual growth, PER of 20) suggests a price of $850. This offers a 9.5% annualized return from current levels, which the analyst considers a bit low for the risk.
Technically, the stock is in a clear uptrend. It closed around $590. A 23% drop would take it to $450, the moderate DCF value. The analyst, with a conservative bias, sees the stock as slightly overvalued and would prefer an entry closer to $450-$480 for a better margin of safety and higher potential return (around 14% annualized from $450).”
Watch the exact part of the video where Tincho from @ClaveBursatilTV talks about Meta Platforms, Inc. here:
Watch the video on YouTube
Read more articles by the world’s top analysts on Meta Platforms, Inc. (META) at the following link. META stock.
