Meta stock analysis.
Discover under-the-radar stock ideas: https://www.overlookedalpha.com
Two weeks ago, Meta unveiled a new social media platform called Threads. The platform hit 100 million users in less than 5 days surpassing ChatGPT as the fastest growing product of all time. The question is, will it have a material impact on Meta stock?
At the latest share price, Meta has a valuation of 800 billion dollars. It’s got 11.6 billion of cash on the balance sheet and 10 billion of long term debt so the enterprise value is 797 billion.
Revenue based on the last 12 months is 117 billion, with net income of 21.4 billion and free cash flow of 17.6 billion. That means Meta stock is valued at 6.8 times revenue, 37 times earnings and 45 times free cash flow.
That’s an expensive price to pay. But it’s easy to see why Meta is valued at a premium.
It’s family of apps are used by more than 3 billion people around the world, it has excellent gross margins of 80% and a good chunk of revenue flows straight to the bottom line. In other words, Meta is an extremely profitable business.
However, after a 160% rally year to date, some caution may be needed. Trailing twelve month revenue is flat and net income is still down 45% from its peak after the company started to invest heavily in the metaverse and AI.
As for threads, the reason it’s grown so quickly is because users have simply been ported over from Instagram. In other words, it’s not organic growth. And CNBC reported yesterday that, after some initial excitement, time spent on the app is already down 50%.
#metastock #stocks #investing #stockstowatch
Discover under-the-radar stock ideas: https://www.overlookedalpha.com
Two weeks ago, Meta unveiled a new social media platform called Threads. The platform hit 100 million users in less than 5 days surpassing ChatGPT as the fastest growing product of all time. The question is, will it have a material impact on Meta stock?
At the latest share price, Meta has a valuation of 800 billion dollars. It’s got 11.6 billion of cash on the balance sheet and 10 billion of long term debt so the enterprise value is 797 billion.
Revenue based on the last 12 months is 117 billion, with net income of 21.4 billion and free cash flow of 17.6 billion. That means Meta stock is valued at 6.8 times revenue, 37 times earnings and 45 times free cash flow.
That’s an expensive price to pay. But it’s easy to see why Meta is valued at a premium.
It’s family of apps are used by more than 3 billion people around the world, it has excellent gross margins of 80% and a good chunk of revenue flows straight to the bottom line. In other words, Meta is an extremely profitable business.
However, after a 160% rally year to date, some caution may be needed. Trailing twelve month revenue is flat and net income is still down 45% from its peak after the company started to invest heavily in the metaverse and AI.
As for threads, the reason it’s grown so quickly is because users have simply been ported over from Instagram. In other words, it’s not organic growth. And CNBC reported yesterday that, after some initial excitement, time spent on the app is already down 50%.
#metastock #stocks #investing #stockstowatch
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NewsTranscript
00:00 Two weeks ago Meta unveiled a new social media platform called Threads. The platform hit 100
00:05 million users in less than 5 days, surpassing chatGPT as the fastest growing product of all time.
00:11 The question is, will it have a material impact on Meta stock? At the latest share price,
00:16 Meta has a valuation of $800 billion. It's got $11.6 billion of cash on the balance sheet
00:22 and $10 billion of long term debt, so the enterprise value is $797 billion. Revenue
00:28 based on the last 12 months is $117 billion with net income of $21.4 billion and free cash flow of
00:35 $17.6 billion. That means Meta stock is valued at 6.8 times revenue, 37 times earnings and 45 times
00:42 free cash flow. That's an expensive price to pay, but it's easy to see why Meta is valued at a
00:48 premium. It's family of apps are used by more than 3 billion people around the world. It's got
00:54 excellent gross margins of 80% and a good chunk of revenue flows straight to the bottom line.
00:59 In other words, Meta is an extremely profitable business. However, after a 160% rally year to
01:04 date, some caution may be needed. Trailing 12 month revenue is still flat and net income is
01:10 still down 45% from its peak after the company started to invest heavily in the Metaverse and AI.
01:16 As for Threads, the reason it's grown so quickly is because users have simply been ported over
01:21 from Instagram. In other words, this is not organic growth. CNBC reported yesterday that
01:27 after some initial excitement, time spent on the app is already down 50%. Meanwhile,
01:33 Instagram feels dated. A high proportion of people say that they never use Facebook anymore
01:38 and its demonstration of the Metaverse left a lot to be desired. As a result, Meta will continue to
01:44 invest in new products and that's going to keep its net income margin lower than in the past.
01:49 All that said, in the world of online advertising, businesses don't have too many options. TikTok and
01:55 Twitter have potential but Google Ads and Meta are still the giants with the ability to get in front
02:00 of billions of users. Let's assume Meta can grow revenue at 10% a year for the next 10 years and
02:06 get its net income margin eventually back to 30%. In that scenario, the company would be generating
02:12 $91 billion in net income in 10 years time and a 25 times multiple on that would put the valuation
02:18 at just under $2.3 trillion. That works out to an investment return of 11% a year.
02:24 In other words, Meta only needs to achieve modest growth in order to be a reasonably good investment.
02:30 The market is telling us that Meta is improving and the company's next earnings report scheduled
02:35 for the 26th of July is going to be an extremely revealing event for long term investors.
02:40 For now, I give the stock a neutral rating but these are my personal opinions,
02:44 not financial advice and I've got no position in Meta stock. For more detailed
02:49 investing ideas make sure to visit our website overlookedalpha.com