4
Meta Platforms, Inc. (META)
- Equity
- US
- Communication Services
RISK
RETURN
Key risk factors
Strong trading liquidity
Vulnerable to price shocks
Limited default risk
Key return factors
Very strong margins and returns
Greatly overvalued vs peers
Low dividends
Company profileMeta Platforms, Inc. engages in the development of products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide. It operates in two segments, Family of Apps and Reality Labs. The Family of Apps segment offers Facebook, which enables people to share, discuss, discover, and connect with interests; Instagram, a community for sharing photos, videos, and private messages, as well as feed, stories, reels, video, live, and shops; Messenger, a messaging application for people to connect with friends, family, communities, and businesses across platforms and devices through text, audio, and video calls; and WhatsApp, a messaging application that is used by people and businesses to communicate and transact privately. The Reality Labs segment provides augmented and virtual reality related products comprising consumer hardware, software, and content that help people feel connected, anytime, and anywhere. The company was formerly known as Facebook, Inc. and changed its name to Meta Platforms, Inc. in October 2021. Meta Platforms, Inc. was incorporated in 2004 and is headquartered in Menlo Park, California.
Valuation: Greatly overvalued
Multiple
TTM
NTM
P/E
26.00
22.70
PEG
1.40
-
P/B
8.00
5.90
P/S
8.30
7.50
P/FCF
24.00
23.60
EV/EBITDA
17.70
17.90
Based on key historical and expected multiples, the stock is greatly overvalued relative to its peers. In particular, the stock is overpriced on P/E, 'expensive' on EV/EBITDA, and overvalued on P/FCF.
Performance: Mixed
Over the last six months, the stock performance has varied, with an increase following a drop. The stock's price trend wasn't definitive when matched against its global counterparts from the same sector and industry (as depicted above). Over the past six months the stock has exceeded the performance of this peer group by 34ppts and its growth decelerated by 5ppts in the past month. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is neither favourable nor unfavourable.
Analyst view: Slightly negative
The average target price is 485 and suggests 4% upside potential. Usually, this means a HOLD recommendation among investment firms. This neutral recommendation suggests no significant price movement, up or down, in the next 12 months. The most optimistic analyst has a target price of 593.0. This translates into 27% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 260.0. This is equivalent to 44% downside potential in the worst case.
Profitability: Very strong
RoE
Meta Platforms, Inc. reported a return on equity (RoE) of 30.2% in the last 12 months, up from 18.5% in FY22. The market consensus projects an RoE of 35.9% in FY24, again ahead of its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 20.2% in the last 12 months, an increase from 13.2% in FY22. The market analysts predict that RoA will be 23.9% in FY24, again stronger than its peers.
RoCE
In the last 12 months, the return on capital employed (RoCE) grew to 23.3%, above the peers. The consensus estimate for FY24 for RoCE is 34.0%, again ahead of the peers.
Net margin
EBITDA margin
Historically, META has reported very strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 32.1%, a growth from 19.9% in FY22. The company has reported strong EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 47.0% in the last 12 months, up from 32.3% in FY22.
RoIC / WACC = 2.8(strong value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 2.8 in the past several years. This ratio implies a strong shareholder value creation. Growth: Good
Revenue
EBITDA
EPS
Free cash flow
META reported revenue of USD 142 711mn in the last 12 months, up 6% from FY23. The dynamics of cash flow, as measure by free cash flow (FCF), were rather similar. EPS grew 17% from FY23 to USD 17.85. Market expects EPS to reach USD 20.17 in FY24.Revenue growth has been moderate in the past several years (positive-to-neutral), while EBITDA growth has been steady. This all contributed to fast EPS growth (positive). FCF has grown rapidly, much better than EBITDA. We emphasize the highly volatile dynamics of EBITDA, EPS and FCF.
Dividends: Low
The company pays dividends on rare occasions. There have only been a few years with dividend payments in the past ten years. Dividend per share (DPS) has grown yearly, but the dynamics are unclear. In the past 12 months, the dividend yield has barely been above zero and was substantially below that of its peers.
Default risk: Limited
The risk of default is minimal. We note robust profitability, solid return on capital, strong debt servicing capacity, adequate interest coverage, solid cash flow generation, and an favourable capital structure, among the positive credit factors. Among the negative credit factors and we point to excessive margin volatility, and poor working capital management.
Volatility: Average
In normal market circumstances, META is moderately volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will move slightly wider than the index. The stock's losses on its worst days (less than 1-5% of the time) will range from moderate to average.
Stress-test: Meaningful
In highly turbulent market conditions, META is volatile. In other words, the stock will fall much more than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be large.
Selling difficulty: Very low
META boasts very high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and remains favourable on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.
Country risk: Very low
The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.
Other risks: Negligible
No other major risks have been identified.