8/5/2022 - Economy and Finance

META PLATFORMS (META): A floor to get excited about a possible reversal

By Gustavo Neffa

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Meta Platforms (META) is the new name of Facebook (FB), the technology and social network company founded by Mark Zuckerberg based in California that groups Facebook, Instagram and WhatsApp applications (in addition to other subsidiaries such as Oculus VR, Giphy and Mapillary).

Your billing focuses on selling advertising in the form of your customers’ ads, although since your name change has a focus on building the “metaverse”. The word "meta" comes from the Greek language and means "beyond", which indicates the futuristic motive: this virtual environment faces great reticences of regulators and some shareholders.

During 2021 he reported total revenues for US$ 117.929 M unleashed in the operational segments of your application family (USD 115.655M, almost all derived from advertising) and a small part derived from your reality laboratories (USD 2.274 M). Some USD 51.541 M were generated in North America (USD 48,380 M from USA), while USD 29,057 M derived from Europe (including Russia and Turkey). Other USD 26.739 M were generated in Asia-Pacific, and the rest (USD 10,592 M) was reported in the rest of the world (including Africa, Latin America and the Middle East).

Remember the strong fall that had in early February 2022? It is because its owner explicitly mentioned the company faced one of the “small recessions we have seen in recent history”, which will require a reduction of contracts and resources. Far from its peaks in the $380 area, the company also suffered the aggressiveness of Fed's monetary policy and the rest of the central banks to combat the highest inflation of the last 20 years, which seems to be discounted at its price.

Meta Platforms (META): quotation evolution 2013-2022

Source: TradingView

From hiring 10,000 engineers a year the reduction reaches 40% and the advertising business Meta was severely affected by a change in the privacy configuration of the Apple mobile operating system, which limits the number of user data that Facebook and Instagram may collect.

For people over 40 years old, Facebook is "a" application. But not for millennials anymore, and many of the users migrate to other social media platforms, although an important part can internalize it as it owns Instagram as well. In addition to total users, it measures the evolution of monthly active people, whose rate went from 15% per year to 8% this year.

The quarterly growth of per-action gains remained solid during 2021, but recorded significantly in the last quarters and decreased 36% in homologous terms in the second quarter of 2022. Growth also slowed down, so much so that it fell 1% homologous in the last quarter reported. But all evil seems to be discounted in the price to be judged by its multiple relative evaluation, for a company whose net margin, ROE and ROA present very high levels in relation to other comparable companies: despite the previous, who would not like to own a company that earns $6,687 million in a single quarter (second quarter of 2022)?

In any case, I think that the company will exceed the slowdown in advertising expenditure we saw this year, the year of fall in economic activity in the US (technical recession according to what was said: two consecutive quarters of fall in the annualized quarterly GDP), which should revert to the year. The projections would show that 2023 would be a year with more dynamism than ever for Meta:

Meta Platforms (META): operational projections

Source: Refinitiv and Estimates of Research for Traders

In addition, the net financial debt as a proportion of the capital is negative: it can pay with the box that has all its debts and remains silver. The net worth is 80% of its assets.Taking as some of the most important technology companies globally shows, the Price-to-Earnings (PE) trailing 12M of Meta is in the last place of the sample in front of the rest of the companies with higher records. In turn, both Price-to-Sales (PS) trailing 12M and Price-to-Book-Value (PBV) trailing 12M have low levels among the comparable ones. Companies like Snap and Alphabet display the highest values (survaloration). The EV/EBITDA would also be indicating that Meta is cheap before its comparable.Looking at the graph (technicals), the bet of buying actions from Meta Platforms (META) is worth it, looking at the numbers too (fundamentals).

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gustavo neffa

Gustavo Neffa

I'm Gustavo Neffa. Director of Economics and Finance at FinGurú. Partner and director of Research for Traders, leading a team of market analysts. I spent the last 24 years in the financial sector in both domestic and foreign entities, having occupied the post of Senior Research Analyst in Macrosecurities of the Banco Macro and the BBVA Banco Francés, as well as economic analysts with the economist in chief of the BBVA Banco Francés. I am also a professor in Corporate Finance, Investment Portfolio Management, Financial Asset Valuation, Valuation of International Investment and Finance Projects in various MBAs and postgraduate courses in Buenos Aires and in the interior of the country and professor of the MBA of the UNLP and the UNNE of Financial Asset Assessment and the postgraduate degree in the UBA Capital Market in agreement with ByMA. Co-director of the UNLP Advanced Finance Programme.

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