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Has the Meta Ship Sailed?<
Doubting him has been a losing bet

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Proprietary Data Insights


FINANCIAL PROS SOCIAL MEDIA STOCK SEARCHES IN THE LAST MONTH

Rank Name Searches #1 Meta Platforms 5922 #2 Snap 1439 #3 Pinterest 724 #4 Match
Group 485 #5 Tencent Holdings 118 #ad Crypto ATMs Are Popping Up Worldwide

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Technology


IS NOW STILL TIME TO BUY META?

Meta Platforms (META) CEO Mark Zuckerberg lost over half his net worth in 2022.

Despite record cash flow, Meta faced lower advertising spends and customer
saturation. 

Plus, its metaverse bets came nowhere close to paying off. The company changed
its name in 2021 from Facebook to Meta Platforms to reflect the company’s new
focus on virtual reality and the metaverse. 

But things are starting to look up for Zuckerberg in 2023. In fact, after Meta’s
latest earnings release, his net worth jumped $12.5 billion in one day. 

Meta shares have been on fire to start the year. According to our proprietary
Trackstar database, financial pros made it their top social media stock search
and one of their top 15 most searched stocks over the last month. 

We covered Meta Platforms last September, but given the stock’s rise and upbeat
earnings report this month, we believe it’s worth revisiting. 

We wrote in September that buying META was an absolute steal, as it traded at a
price-to-earnings ratio of 12.1x. 

But with the stock up more than 51% year to date, has that ship sailed? 

Meta Platforms’ Business

Meta owns and operates some of the world’s largest and most successful social
media platforms. They include Facebook, Instagram, Messenger, and WhatsApp. 

Facebook alone has nearly 3 billion active users monthly and 2 billion active
users daily. Across Meta’s family of apps, there are nearly 3 billion active
users daily. 

In addition, the company owns Oculus, a maker of virtual and augmented reality
headsets and games. It’s part of Meta’s Reality Labs division, which generated
$727 million in revenue in Q4 2022, a 17% drop compared to Q4 2021. 

Wall Street was more excited about the company’s bread and butter, ad revenue. 



Source: Meta Platforms

CEO Zuckerberg’s enthusiasm toward the metaverse sent his stock spiraling out of
control last year, to a low of $88.09 last November.

But during its Q4 2022 earnings call, Meta shifted the focus from the metaverse
to AI, messaging, and expenses. 

The company is using AI to promote engagement across Facebook and Instagram
while enhancing its Reels product. 



Source: Meta Platforms 

Meta shares soared after its Q4 earnings announcement, adding $100 billion to
its market cap. The company emphasized it will heavily focus on cutting
expenses, which is music to Wall Street’s ears. In addition, the company will
start a $40 billion share buyback program. 

Financials



Source: Stock Analysis

Meta’s revenues grew from $55.8 billion in 2018 to $116.6 billion in 2022. But
they slowed from 2021 to 2022. The company is now focused on cutting expenses,
as we said, and improving efficiency. 

Its net income fell from $39.3 billion to $23.2 billion over the last year.
Operating income dropped from $47.2 billion to $28.8 billion. 

META’s profit margin also declined substantially, from 39.6% in 2018 to 19.9% in
2022. 

While Reality Labs and ad revenue are struggling, the company sees some bright
spots, specifically Reels, which it believes can be profitable by the end of
2023 or early 2024. 

Meta laid off 11,000 employees, which will show in its headcount by the end of
this quarter. 

The company has $40.7 billion in cash, cash equivalents, and marketable
securities as of December 31, 2022, with $9.9 billion in long-term debt. 

Valuation



Source: Seeking Alpha

META trades at a P/E GAAP of 21.7x, well below its five-year average of 25.1x.
Despite its stock price rising 51% YTD, it’s still relatively cheaper than
Pinterest (PINS) at 296.5x, Snap (SNAP) at NM (not meaningful), and Match Group
(MTCH) at 38.9x. But Tencent Holdings (TCEHY), the developer of WeChat, trades
at a lower multiple at 19.1x. 

META trades at a price-to-cash-flow ratio of 9.7x, significantly lower than its
five-year average of 16.3x and well below its peers TCEHY at 20.3x, PINS at
29.9x, SNAP at 94.2x, and MTCH at 25.7x. 

With an EV/sales ratio of 4.1x, META’s overall financial health appears stronger
than TCEHY’s at 6.2x, PINS’ at 5.8x, and MTCH’s at 5.3x. Only SNAP is lower at
3.8x. 

Profitability



Source: Seeking Alpha   

Meta’s net income margin of 19.9% is considerably lower than its five-year
average of 32.9%. It’s still better than PINS at 2.2%, SNAP at -31.1%, and MTCH
at 11.4%, but it can’t compete with TCEHY at 31.9%. 

Meta hopes it can improve its profitability and margins by cutting expenses and
focusing more on efficiency. The company’s EBIT margin remains strong at 28.8%,
significantly higher than TCEHY at 18.3%, PINS at 4.4%, SNAP at -30.3%, and MTCH
at 16.2%.

While META and TCEHY have similar market caps, META generates considerably more
cash from its operations, $50.4 billion vs. $22.7 billion. Meanwhile, PINS
generates $622.6 million in cash from its operations, SNAP $184.6 million, and
MTCH $525.6 million.

This massive cash generation gives the company flexibility to adapt to market
changes.

Growth



Source: Seeking Alpha

If META were growing revenues, it wouldn’t be as concerned about cutting
expenses. But 2022 was brutal for the company, as revenue declined 1.1%. In
fact, META’s revenue growth numbers are the worst among the group. TCEHY was at
0.8%, PINS at 13.8%, SNAP at 11.8%, and MTCH at 6.9%. 

Its EBITDA growth of -22.8% is better than SNAP and PINS, but weaker than TCEHY
at -16.0% and MTCH at -0.5%. 

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Our Opinion 7/10

When we wrote about META last September, it was trading at a P/E multiple of
12.1x. It’s currently at 21.7x. While it’s not nearly as cheap as it was back
then, it’s still cheaper than tech giants Apple, Amazon, and Alphabet.  

We still like META. It currently trades above $188. We believe if you can get in
near $150 to $160, it will bring excellent returns in the coming years.

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