Should You Hold Meta (META)?

Meta Platforms (META) kicked off tech earnings last week with a resounding thud.

Shares have risen 500% since late 2022.

Yet, despite beating on the top and bottom line, shares of the Facebook giant dropped almost 20%.

We’ve been a fan of Meta for a while. But the pullback doesn’t surprise us, especially given the tepid revenue guidance for Q2.

But does this provide an opportunity to pick up shares on the cheap or is there more pain ahead?

Meta’s Business

Most of us know Meta as the parent company behind Facebook.

The company rebranded to Meta as CEO Mark Zuckerberg planned to expand into the “Metaverse” and AI technology.

Yet, its social media platforms, led by Facebook, Instagram, WhatsApp, and Threads are the heart and soul of the company.

Despite lower revenue guidance and heavy market saturation, Meta continues to see the number of active users grow steadily.

Source: Meta Q1 2024 Earnings Presentation

The issue comes from lower ad spend, which was exceptionally strong in Q4 last year.

Source: Meta Q1 2024 Earnings Presentation

Meta’s Q2 revenue guidance of $36-$39 billion is higher than Q2 2023 but is more tepid than the growth numbers many expected.

Financials

Source: Stock Analysis

Even with a sales decline in 2022, Meta has still managed to average close to 20% revenue growth for the past 3-5 years.

At the same time, it kept margins steady while increasing free cash flow.

This led the company to issue its first-ever dividend on top of its regular share buybacks.

The company spends half its operating cash flow on share repurchases each year, yielding roughly 2.8% annually.

Management plans to spend another $35-$40 billion in 2024 on long-term investments in AI infrastructure, which they see expanding in the coming years.

Valuation

Source: Seeking Alpha

With its recent pullback, Meta is cheaper than every other mega tech company on our list by a substantial margin.

Its P/E ratio is roughly half that of its peers, except for Apple (AAPL).

On a price-to-cash flow basis, Meta trades at just 14.7x, which is exceptionally cheap.

Growth

Source: Seeking Alpha

Although it’s relatively cheap, Meta’s revenue growth is phenomenal.

While its CAGR over the 3-5 year lookback period isn’t as high as Tesla (TSLA) or Nvidia (NVDA), it easily matches Apple’s and Amazon’s (AMZN).

And of the group, only Nvidia beats it in CAGR free-cash-flow growth.

Profitability

Source: Seeking Alpha

Meta also boasts some of the best margins outside of Nvidia.

That’s helped it deliver consistent returns on equity, assets, and total capital.

Our Opinion 9/10

It’s hard to be bearish on Meta.

The company still expects double-digit revenue growth in 2024.

Plus, it generates huge amounts of cash that it returns to shareholders and invests in its future.

We see the latest pullback as an opportunity, not a reason to be afraid.