In The Zuck, We Trust

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Do you think you’ve had a bad year in the market? Well, Mark Zuckerberg is down $71 billion, as his company, Meta Platforms (META), is getting crushed in this market environment.

However, it’s still the largest social media company in the world and the most searched social media stock by financial pros this month.

In fact, META has held the top spot for social media company searches by financial pros most of this year save for the Musk/Twitter kerfuffle.

There’s a lot to like about META, especially as a value stock.

But as the times change, are its glory days behind it, or is this one the best buying opportunities we’ll ever see?  

Meta Platforms’ Business

Meta Platforms (META) owns and operates some of the world’s most successful social media companies. 

They include Facebook, Instagram, Messenger, and WhatsApp. In fact, Facebook alone has over 2.9 billion monthly active users on its platform. 

Over 1.88 billion users are visiting its platforms daily. In addition, META owns Oculus, a virtual and augmented reality company, which sold 2 million units in Q1 2021. 

The company changed its name last year from Facebook to Meta Platforms as it plans to get more involved in virtual reality and the metaverse.

But make no mistake, most of the firm’s revenues come from advertising through its social media platforms, approximately 98%, while augmented and virtual reality make up approximately 2%. 

Financials

META experienced explosive revenue growth from 2016 to 2021, going from $27.6 billion to $117.9 billion, representing growth of more than 3x. Its 12-month trailing revenues are $119.4 billion. 

However, some investors feel the company’s growth has peaked as management scrambles to find new niches to exploit. Its quarterly revenue growth (YoY) is down -0.90%, which is unusual in the company’s history.

The firm has $40.49 billion in total cash and $16.6 billion in total debt. The company is run extremely well, evidenced by its 2.5x current ratio. 

Plus, it generates nearly $60 billion a year in cash from operations.

Valuation

META might be one of the cheapest big tech stocks in the market right now. 

It has a P/E GAAP ratio of 12.1x, notably lower than its 5-year average of 26.9x. The majority of its competitors aren’t even profitable. 

For example, Twitter(TWTR) and SNAP(SNAP) don’t even have a P/E GAAP ratio. Meanwhile, Match Group(MTCH) trades at 148.7x, and Pinterest(PINS) trades at 75.2x. 

META trades at an astounding 6.7x price/cash flow ratio. While TWTR trades at 1939x, SNAP at 71.5x, MTCH at 26.9x, and PINS at 23.6x.

Profitability

Even though META is significantly larger than its competitors, it operates at a higher gross profit margin of 80.4%. PINS is closest at 78.7%, MTCH at 70.7%, SNAP at 61.2%, and TWTR at 60.8%. 

At an EBITDA margin of 40.2%, META is in a league of its own. SNAP is at -15.2%, TWTR at 4.0%, PINS at 11.7%, and MTCH at 30.4%. 

Growth

META has respectable revenue growth (YoY) of 13.9%, given its size.  However, its growth is not nearly as rapid as its competitors, with TWTR at 17.4%, SNAP at 35.8%, MTCH at 20.0%, and PINS at 21.0%.

Our Opinion 8/10

Shares of META are down more than 58% year-to-date, making a buy at these levels an absolute steal. 

While the mainstream media have scrutinized the company, it remains the most popular social media platform. In addition, the firm’s pivot into the metaverse shouldn’t scare people off. 

After all, Mark Zuckerberg has an excellent vision of running the company with a solid track record, buying WhatsApp, Oculus, and Instagram. We believe he’ll figure things out and lead this company back to glory. Not every day do you have a profitable tech stock trading at these valuations. 

We’re buyers at these levels and believe this will be a great investment for many years.