Revisiting Our Facebook Call

Back in February, we covered Meta (FB) as Facebook rebranded and dove deeper into the metaverse.

At the time, we rated the company 6/10 based on valuation and outlook.

But things have changed.

You can get a quick recap of our story line in this two-minute video here.

At the end of the article, we noted that the company’s stock becomes “cheap at $200 and an absolute steal at $150.”

Well friends, shares recently dropped as low as $185.52.

And now that it’s in that price range we wanted, it’s time to do an update and see if our thesis still holds.

To start, we looked through our proprietary search data. And sure enough, Meta landed in the top five technology searches by financial pros.

The strength of searches by general financial pros and those with assets >$1B under management highlights the continued interest by institutional money.

And despite the major selloff in the stock, Facebook is still at top 10 holding in the S&P 500 and Nasdaq 100.

What we need to know is whether the new price justifies a higher rating as well as any story changes since our last piece.

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Meta Platforms (FB) Business

There are some CEOs that the general public just can’t get enough of…

Guys like Elon Musk can say whatever they want and his supporters will back him. 

On the other hand, there are some CEOs who can do the right thing but still be viewed as the villain. 

Mark Zuckerberg fits that bill. 

How can someone who has built the most popular social media app in the world, helping connect so many people together, be so hated?

Like him or not, he is about to take the company he built in his dorm room into the metaverse. 

Incorporated in 2004 as Facebook, it would just take eight years for the company to IPO,  and evolve into the most popular social media platform in the world, with more than 3 billion active users across the globe. 

And while the Facebook platform remains wildly popular to this day, the firm has several other revenue generating assets which include Instagram, WhatsApp, and Oculus. 

The firm primarily generates revenue from advertising. 

In 2021, the company changed its name to Meta Platforms reflect its shift into the metaverse. 

Zuckerberg said it doesn’t expect to turn a profit from the new initiative for up to 15 years. However, the investment now could position it to dominate this burgeoning market.

More recently, the company faced headwinds monetizing its “reels” format on Instagram as well as changes in Apple’s (AAPL) privacy that reduced visibility of consumer data.

Additionally, advertisers spent less in recent months as supply chain issues meant they couldn’t keep up with demand. So why bother advertising to stimulate demand you can’t meet?

However, both of those headwinds are starting to decline as the war in Ukraine and other global problems appear to have capitulated, meaning the worst might be behind us.

Meta Platforms  (FB) Financials

No matter how you slice and dice it, FB is one of the most profitable and well run companies on the planet. 

The firm has increased its revenues every year since going public in 2012. In fact, revenues doubled from 2018 to 2021, moving from $55B in annual revenues to $117B. 

Meta’s return on invested capital (ROIC) is an impressive 29.9% over the last 12-months. Not too shabby when you consider its 2.6 times better than the sector average. 

And its return on assets (ROA) is an astounding 23.7%, which is 2.6 times superior than the sector average.

FB runs a tight ship as witnessed by its return on equity (ROE), which stands at 29.9%, a figure which is 1.58 times the sector’s average. 

Despite its massive size (the tenth largest publicly traded company in the USA), FB continues to find pockets to grow. 

Last year the firm’s revenue growth was 38%,  which showcases again, how strong the operations at FB are.

Meta Platforms (FB) Valuation

FB is trading relatively cheap when you compare it to its 5-year Price-to-Earnings Ratio. It’s currently at 16.1 while the 5-year average is 30.8. 

Now, when you compare FB to other big tech companies, it’s cheaper than Apple (AAPL), Microsoft (MSFT), and NVIDIA (NVDA) from a P/E perspective. 

Even FB believed its stock was cheap. The firm bought a record $19.2B of stock in Q4 of 2021, at an average price of around $330 per share. That’s significantly higher than its current share price. 

And while the firm might be down in that position now, it has plenty of time to see it improve. 

You see, FB has a current ratio of 3.15, which means its short term assets are 3.15x its short term liabilities. 

Its quick ratio is 2.94. That means the company has no cash concerns near term. 

And lets not forget, FB has no long term debt. 

It shouldn’t come as a surprise, but Wall Street likes the stock, 44 analysts cover the stock, and 32 of them rate it a buy, with the overall average price being $327.79 per share. 

Our Opinion 10/10

Meta Platforms (FB) is down significantly from its last year. Some traders are worried that the recent Apple iOS update will hurt the company’s advertising business. 

However, FB is in an excellent position financially to work these issues out. It has already devised a strategy to become a leader in the metaverse.  And while that might seem far away, it’s hard for us to bet against a visionary like Mark Zuckerberg. 

It’s the cheapest  FAANG stock on the board, and with shares down 30% this year, we feel that this is a no-brainer investment over the next 12-18 months. Most of the headwinds are starting to fade, and the stock entered the price range we wanted. That’s why we’re not afraid to give it a 10/10.