Meta Platforms, Inc.

META Details

Meta Platforms, Inc. (NASDAQ: FB) is a social media platform with over 3.6 billion monthly active users. Users communicate with one another in various ways, including sending messages and sharing news, photographs, and videos. On the video side, the company is working to establish a library of premium material that will be monetized through adverts or subscription money. Advertising income accounts for more than 90% of the company's overall revenue, with 50% coming from the United States and Canada and 25% from Europe. Meta runs at a 30%-plus margin, with gross margins exceeding 80%.

Financial Highlights: Q1FY22

• Decent Increase in Revenue: Facebook produced USD 27.91 billion in revenue in Q1 FY22, up 7% from USD 26.71 billion in Q1 FY21.
• Increase in Monthly Active Users: Facebook monthly active users (MAUs), were 2.94 billion as of March 31, 2022, an increase of 3% on YoY.
• Capital Expenditure: Capital expenditures – Capital expenditures, including principal payments on finance leases, were USD 5.55 billion for the first quarter of 2022.
• Strong Liquidity Position: Cash and marketable securities totalled USD 43.89 billion as of March 31, 2022. In Q1 FY22, free cash flow was USD 8.53 billion, up from USD 7.81 billion in Q1 FY21, indicating a sound liquidity position to handle any opportunity

FY22 Outlook: 

• Estimated Revenue: Total revenue in Q2 FY22 is expected to be in the USD 28 to 30 billion range.
  

• Overall Costs and Capex Guidance: FB expects overall costs in FY22 to be in the USD 87-92 billion range, down from its previous forecast of USD 90-95 billion. Further, FB expects FY22 capital expenditures, including principal payments on financing leases, to be in the USD 29-34 billion range, consistent with its previous forecast.

Key Risks:

The company is exposed to a variety of risks ranging from signal loss resulting from Apple's iOS changes, other challenges are broader macro trends, like the softness in e-commerce after the acceleration we saw during the pandemic, Russia-Ukraine standoff as FACEBOOK is blocked in Russia and the company decided to stop accepting ads from Russian advertisers globally.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Source: Analysis by Kalkine Group)

*% Premium/(Discount) is based on our assessment of the company’s FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.            

Stock Recommendation:

FB's stock price has fallen 47.63% in the past nine months and is currently leaning towards the lower end of its 52-week range of USD 384.33 to USD 169.00. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 219.53.

FB sees three key investment objectives that will drive growth: reels, advertisements, and the metaverse. It will introduce a higher-end headset later this year, codenamed Project Cambria, that will focus more on business use cases and eventually replace the laptop or work setup.

Based on growing sales, reasonable margins, an optimistic forecast, a solid liquidity position, associated risks, and current valuation, we recommend a "Hold" rating on the stock at the closing market price of USD 188.64 as of June 01, 2022.

1 Year Technical Price Chart (as of June 01, 2022). Source: REFINITIV, Analysis by Kalkine Group

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.