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About Meta Platforms

Yeah, yeah, the whole “started in a dorm at Harvard and now we’re here” story.

Don’t get us wrong, it’s a pretty cool story and an even greater testament to the fact that the American Dream is still alive and well. For someone to have started what initially began as TheFacebook in 2004 and to eventually have grown it into a brand that owns some of the most prominent social media platforms in the entire world, this country is special. 

But no mistake about it, it wasn’t just a computer whiz by the name of Mark Zuckerberg that played a role in developing the platform, but a handful of other Harvard students such as Dustin Moskovitz, Chris Hughes, Eduardo Saverin and Andrew McCollum that played integral roles in developing and scaling out what has ultimately become Meta Platforms.

But before Meta, as most are probably able to recall, this company was just simply Facebook, a social media platform that is still by all means dominant, mainly generating revenue through advertising, as most other social media companies do. 

However, Meta is different from other social media companies that we’ve analyzed in the past in that its user base is as broad as all get out. Now, although the company still certainly makes money through advertisements (that is, essentially offering up valuable real estate on its website for those who want to advertise their goods and/or services), the company is seemingly looking forward to further expanding its revenue streams.

This includes paid profile verification check marks.

But before we get into all of that, we think it’s worth noting some of the companies that are owned by Meta Platforms so as to provide some size, scale and perspective on this company and its ubiquity. 

Meta, obviously home to Facebook also owns social media gargantuan Instagram, global messaging platform WhatsApp, prominent virtual reality company Oculus VR, GIF file platform Giphy (which it might be forced to sell due to overseas antitrust concerns) and a trove of other smaller technology companies that keep the company as lean and mean as it is today.

Oculus VR is probably one of Meta’s most controversial acquisitions in recent history.

In fact, in recent months and even over the last year or so the company has been under copious amounts of scrutiny and pressure from investors regarding its aggressive investments made in the metaverse, as evidenced by its share price decline following September 2021, falling somewhere in the neighborhood of 53% between then and now.

What’s the metaverse one might ask and why has Meta’s stock been punished ever since the company announced its entry and resoundingly high amount of confidence in the space?

Of course, everyone is entitled to their own views regarding the efficacy and long-term feasibility of the metaverse, however, we personally see it unequivocally as the future, whether we like it or not.

It’s basically a world within a world.

Namely, we don’t think it is necessarily healthy for people of all ages to be connected to a screen all day with the false belief that it is reality.

We think people should get more fresh air and interact with people live and in-person when possible.

However, the future is the future and objectively speaking, interest in the metaverse and the implications thereof have broadly grown at an exponential rate and although we think some might be susceptible to getting addicted to the online world and possibly suffering mental health issues as a result, digging deeper into the metaverse and the more responsible, practical uses and applications is interesting to us.

Obviously, if there is another pandemic or public health emergency and the world goes back to being fully remote, the metaverse will have a lot to gain.

From our viewpoint, however, even if there isn’t another COVID-19 or related virus, more and more employers and employees are seeing the value in not going into the office every morning, instead craving the flexibility of traveling to their heart’s delight and from the employer’s perspective, being able to trim down some rather lofty expenses such as leasing office space or chartering flights or other related travel expenses for both its employees and executives.

It is also our personal view that if any company has the technological fire power and prowess to lead the world into the metaverse, it’s Meta Platforms.

We also think it is worth briefly noting that the company has a rather stellar board of directors’ lineup including, of course, Mark Zuckerberg as well as technology titan Sheryl Sandberg, fellow tech titan and prominent venture capitalist Marc Andreessen, founding partner of DoorDash, Tony Xu, founder of Dropbox Andrew Houston along with other pioneers in other relevant fields.

All in all, whether or not one completely agrees or disagrees, we think it’s worth letting the company’s financial figures speak for themselves in our attempt to ultimately determine whether or not Meta’s stock is worth considering investing in and holding, especially at its currently depressed levels.

Meta’s stock financials 

With its shares trading at a relative historical discount, Meta’s stock is currently priced at $173.13 with a prevailing market capitalization of just a hair under $450 billion with a price-to-earnings (P/E) ratio of 21.20 all while not distributing an annual dividend to its shareholder base.

So far, we have no issues as the stock’s valuation has come down dramatically to ever so slightly above that of fair value (i.e., a P/E ratio of 20) and with regard to the dividend, it is more than common for even larger technology companies to not offer its shareholders a dividend due to the amount of investment that is needed to stay ahead of the curve and the competition within a rapidly changing business landscape.

Moving onto the state of the company’s balance sheet, Meta’s executive team is tasked with handling and properly allocating approximately $185.7 billion in total assets along with just over $60 billion in total liabilities.

Pictured above is one of the most famous founding members of Facebook, Mark Zuckerberg

This is one of the best overall balance sheet structures we have ever analyzed.

With the cumulative value of its total assets towering over that of its total liabilities by more than three times over, this indicates that Meta is both ready to make strategic acquisitions in order to fuel (non-organic) growth and it is also more than prepared for the deepening of the current economic recession.

No complaints.

Sidestepping over to the company’s income statement, revenue generation on the net hasn’t been a sore spot for Meta, although the company did report some revenue deceleration between 2021 and 2022. Namely, the company’s total revenue was reported as nearly $118 billion in 2021, however, it saw a very small decline the following year as it stood at around $116.6 billion in 2022.

We have our suspicions that this rather immaterial decline in total annual revenue can be attributed to the early stages of Meta’s quest (pun intended) into the metaverse and the initial consumer apprehension that came as a result combined with the fact that pretty much every company that generates revenue through selling ads experienced a multitude of headwinds, one of them being a strong dollar.

Nevertheless, $116.6 billion in total revenue isn’t a dramatic miss for Meta and over the last five years it has grown from approximately $55.8 billion since 2018 and each year thereafter, excluding, of course, the gap between 2021 and 2022.

As it relates to the company’s cash flow statement, Meta’s net income and total cash from operations figures have been nothing short of outstanding throughout the myriad of challenges imposed on the company over the last five years.

As a reference, the company’s net income since 2018 has stayed in the range of $18.4 billion (2019) and $39.3 billion (2021) and its total cash from operations has remained (during the same time period) between $29.2 billion (2018) and $57.6 billion (2021).

The fact that Meta, despite all of the prevailing headwinds and external negative forces, was still able to produce a substantial amount of cash through its operations and free cash flow as well speaks to its financial fortitude and outstanding efficiency.

Meta’s stock fundamentals

According to the figures posted on TD Ameritrade’s platform, Meta’s trailing twelve month (TTM) net profit margin is indicative of one of an industry leader, which, of course, is precisely what Meta is.

For instance, the company’s TTM net profit margin stands at 19.9% to the industry’s average of 17.12%.

Once again Meta remains top dog in relation to the competition.

Lastly, according to TD Ameritrade’s platform, Meta’s TTM returns on assets and investment are both a hair below that of the industry’s average, which to us, can likely be attributed to the company’s expansive operations and thus it might take longer for the company to reap the benefits of its assets and investment(s) given its relative scale and again, extensive operations.

Should you buy Meta Platforms stock?

You know how people like to say that we’re at an inflection point? 

Well, although we personally view that phrase as being grossly overused, in a certain respect, we think Meta Platforms is actually at an inflection point.

Although Meta has reportedly poured billions upon billions in the metaverse already, this is likely far from the last of it.

Many investors will greatly diverge as to whether or not Meta should pursue the metaverse and give it all it has along with those who think the company should stick to what it has proven itself to be good at and keep innovating there.

We’re more of the former attitude.

We see the metaverse as a multiplatform user experience that will grow with society and become more and more ingrained, again, whether we like it or not, in the human experience. 

Take video games for example.

When one of MacroHint’s founding partners was younger he played hours of FIFA and NBA 2K. 

One day, it is our view that technology that comes as a result of Meta’s investments will enable gamers across the world to incorporate Meta’s equipment (headset, primarily) into the game, so instead of playing a video game with just a gaming console controller, one will be able to be the player and physically feel like they are shooting a jump shot or blocking a penalty kick.

Wii to the extreme.

We think this is the future.

Barring all of our opinions, the numbers say that Meta Platforms is a very, very efficient company with a lot of valuable assets and other key components that will keep driving future success, even if it takes some time for the company to establish the future of what is to come from the metaverse. 

Given all of this information we give the company’s stock a “buy” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.