Let me start by saying that I hate Facebook. In fact, as an “old” (as my son calls me), I really don’t go in much for any form of social media. I do know that my generation (Gen X) LOVES Facebook and uses it heavily to stay in touch with friends and family. I also have friends outside the US and they love to use it as well, so there is clearly a market for this product. Having said that, my son NEVER uses it. He does use Instagram but prefers TikTok and Discord for his social media consumption. This worries me about the future of META.
Having said that, the stock looks like a no brainer at this price. It currently trades at 16x earnings, will generate between $120-$125 bil in ad rev this year. They generate about $28 bil a year in free cash flow on top of the $40 bil in cash on hand and no debt. On the surface this looks like a cash cow selling for pennies on the dollar. Unfortunately we cannot trust what Zuck will do with all that cash. META paid out $6 bil in share based compensation over the first 6 months of 2022, and threw $13 million at “purchases of property and equipment”, which I suspect was just pumping cash into the fever dream of the metaverse, over the same period. We’re looking at almost $40 bil out the door annually on these two expenses. This profligacy is my greatest fear about an investment in META. If I owned the company outright I would slash both of these expenses and milk this cow dry for a decade, but I’m an idiot so thankfully no one is asking me.
I see the potential for META to provide a wonderful return at these prices. Hell if the PE simple rises to 25 over the next 5 years with no change in earnings you would see a double digit return on your investments. Why are people not pounding the table for META right now? Is it the perception that Facebook is doomed? Is it the stink Zuck brings to the company through his ethically questionable business practices? Is it the fear that META under Zuck will simple drain the golden goose in search of the phantasm of a metaverse? Tell me why I shouldn’t put a good chunk of capital in this stinker?