META Stock Analysis

META, formally Facebook, is a company whose mission is to "give people the power to build community and bring the world close together". META has two main business group, namely (1) Family of Apps (comprising Facebook, WhatsApp and Instagram), and (2) Reality Labs. Currently, the main profit driver is the Family of Apps while Reality Labs is currently and will be expected to make losses for several years.

QUANTITATIVE ANALYSIS

For META's sustainable earnings, in view of the current recession, 70% of TTM net income will be projected. In addition, the operating loss of Reality Labs, which is really a long term investment to shift from 2D to 3D social networking, will be added to the sustainable income calculation.

Enterprise Value: Market Cap (@$99.2 per share) + Debt - Cash Equivalents	(2,687,548,472*$99.2) + $10B - ($14.308B + $27.468B) = $234.828B
Sustainable Earnings (TTM): Net Earnings + Growth CAPEX*(1-Tax Rate)	($4.395+$6.687B+$7.465B+$10.285B)*0.7 + ($3.672B + $2.806B+$2.960B+$3.304B)*(1-0.18) = $20.1824B + $30.6B
Earnings Power Value: Sustainable Earnings/Expected Rate of Return - Debt + Cash Equivalents	​$30.6B/0.1 - $10B + $41.776B = $337.776B
​Growth Yield: Distribution Yield + Investment Growth + Organic Growth = (Share Repurchase/Enterprise Value) + (Operating Income/Net Assets) +Organic Growth)	($26.2B /$234.8B)+ ($28.832B/$124.094) + 0.01 = 35%
​Growth Value: [(Growth Yield - WACC)/WACC]*Investments	[(0.35-0.1)/0.1]*($32B) = $80B
​Total Assessed Value: (Earnings Power Value + Growth Value)	​$337.776B+$80B = $417.776B
Fair Price: Total Assessed Value*(1- Margin of Safety)/Number of Shares	$292.4B/2,687,548,472 = $108.81
Exit Price: Total Assessed Value/Number of Shares	​($417.776)*1.2/2,687,548,472 = $186.5

Enterprise Value @$99.2 per share<Total Assessed Value (under-valued).

Based on quantitative assessment, a fair price to start accumulating META would be around $108.81. The lower, the higher better due to higher margins of safety ($87@ 20% margin of safety).

Accumulation Range: $87 - $108.81

Comments:

(1) Values used are either with TTM for share repurchase and investments.

(2) At 10% expected rate of return, it takes 10 years to "break even".

(3) 20% margin of safety is used.

QUALITATIVE ANALYSIS

Strength: META benefits from the network effects of its family of apps, which is used by 3.64B people globally.

Weakness: META's reality labs business, while growing, is still facing huge losses of more than $10B with no certainty of being able to turn profitable in the near term.

Threats: META faces increasing regulatory pressures that can increase business cost due to compliance and even loss of income due to outright ban (such as in the case of Russia) and changes in platform pricy policy (such as in the case of Apple). In addition, competitors such as Tik Tok also draw user attention away.

Opportunity: META is building the next generation platform and hardware products involving the use of virtual and augmented reality, which can further strengthen and grow its businesses.

OVERALL ASSESSMENT

META has little debt and has demonstrated phenomenon track record to grow profits over a decade due to its ability to adopt new technologies and adapt to changing customer and regulatory environments. META's leadership remains strong with its young founder Mark Zuckerberg and is likely able to continue to succeed. At the right price, META represents a relative decent investment over the longer term.

*Disclaimer: All views represented are personal and do not constitute as financial advise