FKA: META

Current price $144.53.
Down well over 50% from 52 week high of 355.15 (the falling knife part).
Down today in an up market, presumably because of the German antitrust order?

According to Y! avg estimate for 2023 earnings is $11.08/sh.
PE = 144.53/11.08 = 13.0.

Voldemort has
T = 1
Financial Strength = A+
Safety = 3
3-5 yr target = $450-675

$450 in 5 years would be better than a triple, suggesting “worst outcome” is 25%/yr.

How likely is it the outcome is better than that?

John

Down today in an up market, . . .

+++
+++

HUH???

What markets are you following?
Any in the USA?

Closing values for 21 Sept 2022:

DJIA 30184 -523
NASDAQ 11220 -205
S&P 3790 -66

Closing values for 21 Sept 2022

Please refer to the timestamp of my post.
Markets were positive through 2:00 pm today.

John

Current price $144.53.
Down well over 50% from 52 week high of 355.15 (the falling knife part).
Down today in an up market, presumably because of the German antitrust order?

According to Y! avg estimate for 2023 earnings is $11.08/sh.
PE = 144.53/11.08 = 13.0.

A lot of stocks are way down from a year ago, but in this case, it is down from what seemed like a fairly reasonable valuation to start with, at about 30x earnings with rapidly increasing revenues and potentially improving margins.

Apple has single-handedly thrown a monkey-wrench into their engine, with their new privacy policy, costing Facebook huge amounts of revenues and earnings, but I suspect Facebook will figure this thing out. And if the metaverse doesn’t pan out, Zuckerberg is smart enough to know when to give up.

Probably because of those 2 factors, Facebook is now being priced as though it were now in terminal decline. Much as many people would wish this were true, I think it’s not, and Facebook remains a formidable company which will solve its problems and remain one of the two top social media companies (Google being the other). At its current price, I think it’s the best investment I know of, and I am seriously considering increasing my position significantly. It should be my #1 investment, not #10.

dtb

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Facebook remains a formidable company which will solve its problems and remain one of the two top social media companies (Google being the other). At its current price, I think it’s the best investment I know of, and I am seriously considering increasing my position significantly. It should be my #1 investment, not #10.

OK, as of today META is my #5 holding.

One additional thing that is worth pointing out is that time may be on Meta’s side. If you take the last 2 quarters’ ‘disastrous’ results (as a result of decreased revenues from Apple’s privacy rules and increased costs), the company had GAAP earnings of $14.2b (market cap is currently $384b, for an annualized P:E of 13.5). They used $14.5b (i.e. all their earnings plus a bit) to repurchase shares, i.e 60m of the 2.33b shares outstanding at the end of 2021. Obviously, in retrospect, they overpaid, paying $240 per share (the price is $143 now), but if they continue these repurchases at current prices, they will start to seriously reduce the share count.

dtb

3 Likes

Clearly META is still a cash machine, for the moment. I think a lot of investors and advertisers are probably troubled by younger age cohorts developing a negative view of the platform and either not spending time on it, or gradually aging out (at least in the U.S.):

https://www.theverge.com/22743744/facebook-teen-usage-declin…

Whether the age issue is an excuse for skittish investors to sell out in a “risk-off” environment, creating a real value proposition, or a harbinger of worse problems down the road, I don’t know the company well enough to guess.

It is clear that Facebook recognizes the problem and they’re working on it. In theory, I’d think their incredibly detailed user data plus some analytics could help test which kinds of content and formats seem to drive increased engagement for young people. So it seems entirely possible (to me) that they get this turned around, maybe by cloning Tik-Tok or buying their way out, as with Instagram.

DTB, if you’re comfortable with a large position size, I assume you’ve got a more sophisticated take on this than I do – would love to hear it!

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I have serious doubts a META owned product will ever be back in fashion with the young. Buying Instagram worked at a very different time. At least some of Instagram’s success was market confusion (i.e., many not knowing it was a FB product). And the distaste for FB (a distaste I admittedly share) was not yet really in full bloom.

I don’t think Meta can get away with the same now. The trade name FB/Meta has effectively become a scarlet letter among the taste makers, and any new or purchased project with its mark will be, by definition, not for the young.

META might be a good buy, I don’t know, but I’d be skeptical of any thesis that relies on it launching another hit project for the younger set.

I have serious doubts a META owned product will ever be back in fashion with the young.

My daughter, age 13, takes pokes and me for being on FB with the other “old people”.

OTOH, she and her friends enjoy playing with their Oculi (is that plural?). I regularly ask her what social media sites she’s using as confirmation for my investments. She still gets on Roblox as well.

John

My daughter, age 13, takes pokes and me for being on FB with the other “old people”.

OTOH, she and her friends enjoy playing with their Oculi (is that plural?). I regularly ask her what social media sites she’s using as confirmation for my investments.

My kids are about 30 and are pretty regular users of Facebook, along with Messenger for phone calls and Marketplace for buying and selling stuff. But it is certainly true that younger kids (my nieces and nephews for instance) turn their nose up at Facebook (although Instagram is ok). Their social media use is a bit of Snapchat, a bit of TikTok, Instagram, Messenger, YouTube, etc.

However, I wonder whether they won’t eventually come over to the evil FB empire, when they want to keep in touch with a wider group, like work colleagues, extended family, their school reunion, etc. Just because teenagers won’t use Facebook doesn’t mean they won’t eventually use it, as they grow older.

It’s hard to get a feel for this sort of thing. But is there really anything like Facebook that has a network effect that is big enough to become a threat to Facebook? I don’t see TikTok or Snapchat as really having that potential, or anyone else, for that matter. But I’m open to ideass…

dtb

1 Like

In my opinion, if Meta wants to print money, it can, and I expect that in the short term there will be cost control more so than in the past which will give margins a bump. The stock might (or might not) then bump up, too.

The potential generational shift in the user base I think is such a slow, long-term factor, that I don’t personally worry about it. It makes for easy headlines, which drives market sentiment somewhat, but headlines don’t always draw attention to the most important things.

There’s a huge asymmetry between the growth rates of users for social media companies targeting teens and the potential (or not) fall off of social media companies such as Meta that are frequented by people older than teens. The reason is simple … if you have a target age range of, say, 14-19 years old, then when that group ages by one year, your target age range is now 14-20 (i.e. a meaningful percentage increase, assuming the 19-year-olds who have turned 20 stick around). The percentage decline isn’t the same if your user base is 20+ if after one year your user base becomes 21+

(I’m obviously simplifying things substantially.)

In my opinion, other primary factors - such as the number of ads served per user and the revenue per ad - and secondary factors like the average disposable income of the user base (which will affect revenue per ad), are likely to have a stronger effect over the next few years.

I expect the cyclical nature of these factors will become more significant as overall growth slows down. What may happen in the short term is that a cyclical downswing, or a one-time effect (e.g. the Apple anti-tracking feature) may be mistaken for a long-term decline.

(Disclaimer: long Meta)

– David

3 Likes

Looks like FB is going to open at just over $100 / share after a pretty dismal earnings report.

For those keeping score, that is about where it was trading in October 2015 (7 years ago). They will probably earn $8 - $10 per share this year - this has to be the bottom right???

tecmo

2 Likes

Feels like a good risk/reward for a potential short term trade based on over-reaction, and for a longer term hold. Could it go down further over the next 6-12 months with the rest of the market? Sure

I’d like to think so. Maybe closer to $9/sh this year. A PE of 10 would be 90/sh. Y! says next year average estimate is 10.49, but is suspect that gets lowered to $9-10? I suspect we won’t be in this environment forever, so at some point earnings from ad spending, etc. raise again. They’re making a big bet on the Metaverse, and have some other irons in the fire. If Metaverse is a complete bust that could be a problem, as FB looks like its best days are behind it. One of the reasons I invested in them was that my daughter likes playing with the Oculus. She has a few friends that she plays with. My wife has actually played on it as well. On the other hand, it hasn’t spread like wild fire. I think most kids do not have one. They’re coming out with another version, but it’s much more expensive (>$1400?). That doesn’t sound like the way to get a bunch of adopters. I’d think they’d want a $100 headset.

Any other thoughts?

I don’t know. The model is broken. Apple broke it. The metaverse focus means they are not dealing with today’s problem. A simple announcement that they are scaling METAverse investment will help. But I doubt Zuck is capable of admitting that he needs to pivot.

3 Likes

Yes, I have one thought. I don’t trust Zuck. I sold out about six weeks ago to harvest some tax losses, with the thought that I might buy back after the earnings report. I was afraid that META would double down on its investment in the metaverse in the face of a roaring hurricane beating back their ad revenues, and that is exactly what they have done. Facebook is an eroding utility, and the metaverse is a speculative money pit. Zuck is turning the company into a giant speculative start up. I’m not on board for that kind of risk. I have a few shares in a couple of tax free accounts that I might keep in the coffee can, but I wouldn’t put new money into META.

PP

4 Likes

I am not sure, which is why I’m out. The problems are multiple, and Zuck has a new expensive toy (I suspect “anchoring”; he’s already dumped billions into it, and he has trouble admitting a mistake.)

The problems include the uncool factor, something that’s remarkably hard to reverse. That Apple has put a giant wrench in their basic business model and they have no answer. That upper management has left or is distracted. That the site has become rife with scam advertising. That new, splintering sites are proliferating (death by a dozen cuts. Maybe a few dozen.)

Given that the history I know is that he took the core idea from someone else, and that it took tremendous pressure to get “adults in the room” before the company enjoyed such success, I have very little faith in Zuck. Virtually none.

However it is huge, it is still well and widely used, and the problems are not insurmountable; I’m just not sure they are going to be surmounted. I left a ton on the table, having picked it up at $17 after the flubbed IPO, but I didn’t get out until a couple months ago, shame on me. Ah well. Being a little greedy there, I guess.

3 Likes

you may well be right- i’m probably anchoring too, but at first glance (i haven’t read the Q3 report yet), it seems that the new price already factors in most or all of that pessimism - maybe i’ll change my mind when i have time to actually read about what happened to disappoint investors so much (i’m on vacation)

thanks for your note,

wilber

1 Like

this article reassures me that the investment might still make sense, now that the share price has dropped so far:

https://stratechery.com/2022/meta-myths/?access_token=eyJhbGciOiJSUzI1NiIsImtpZCI6InN0cmF0ZWNoZXJ5LnBhc3Nwb3J0Lm9ubGluZSIsInR5cCI6IkpXVCJ9.eyJhdWQiOiJzdHJhdGVjaGVyeS5wYXNzcG9ydC5vbmxpbmUiLCJlbnQiOnsidXJpIjpbImh0dHBzOi8vc3RyYXRlY2hlcnkuY29tLzIwMjIvbWV0YS1teXRocy8iXX0sImV4cCI6MTY2OTgyNDkzMiwiaWF0IjoxNjY3MjMyOTMyLCJpc3MiOiJodHRwczovL3N0cmF0ZWNoZXJ5LnBhc3Nwb3J0Lm9ubGluZS9vYXV0aCIsInNjb3BlIjoiZmVlZDpyZWFkIGFydGljbGU6cmVhZCBhc3NldDpyZWFkIGNhdGVnb3J5OnJlYWQiLCJzdWIiOiJBWWl1UWd0dWp0ZnloZHVoSzh1V0Q3IiwidXNlIjoiYWNjZXNzIn0.dW8EuG7YoF9oXQ-cITIWWTjFQOm4cA8ozZt7G723kTwxfWEFn7DdZ8P3UwZO7Ex8NBWknO7RJIaE3XSedDjFiJbleClUFHE-AFL1448-B4eeD0SMeHHpcF4Czurz6sMfc9B9TKOpmEp6CrFHJ0IKHdBR0RhG6zx5ahnPEu3tPtyAb6sZs07bTF2M3hTBmObSkCWHoF_d07JHz5tnie-UENbAdZntf-tZaCTnHoO08H3Taq3hWtKxc7yOgGRvMiuhMcdnPTY5_d4B3uJMocpL_8HPxa3cf8DLAOQjg7idODVmjVgEOUzOscTjqSfI7ZxdWl1CcbRiX0epQm-xawsh2w

wilber

2 Likes