Company Reports

Meta posted a solid first quarter, with revenue growth and management’s second-quarter outlook—while modestly disappointing relative to FactSet consensus—putting the firm on a path to exceed our 2024 revenue expectations. However, the firm increased its budget for both full-year operating expenses and capital spending, with CEO Mark Zuckerberg convinced that the firm should “invest significantly more in the coming years” into artificial intelligence. Zuckerberg expects a big step up in investment before AI services generate meaningful direct revenue. After accounting for faster revenue and expense growth in our forecast, we’re leaving our fair value estimate at $400 per share. With the selloff following the earnings release, we believe the shares are fairly valued.

Meta's Facebook is the largest social network in the world, with over 3 billion monthly active users. The growth in users and user engagement, along with the valuable data that they generate, makes Meta’s platforms attractive to advertisers. The combination of these valuable assets and our expectation that advertisers will continue shift their spending online bodes well for the firm’s top-line growth and cash flow.

Meta's Facebook is the largest social network in the world, with over 3 billion monthly active users. The growth in users and user engagement, along with the valuable data that they generate, makes Meta’s platforms attractive to advertisers. The combination of these valuable assets and our expectation that advertisers will continue shift their spending online bodes well for the firm’s top-line growth and cash flow.

We are increasing our Meta fair value estimate significantly to $400 from $322, as we are more optimistic about its profit margin expansion. Meta’s fourth-quarter results showed strong network effects, which attracted more users and increased engagement while allowing it to sell more ads at higher prices with lower user and advertiser acquisition costs, impressively expanding margins. We also commend Meta for instituting a dividend alongside share buybacks.

Meta's Facebook is the largest social network in the world, with over 3 billion monthly active users. The growth in users and user engagement, along with the valuable data that they generate, makes Meta’s platforms attractive to advertisers. The combination of these valuable assets and our expectation that advertisers will continue shift their spending online bodes well for the firm’s top-line growth and cash flow.

Meta continues its leadership in social media advertising, with third-quarter numbers demonstrating strength on all fronts: user growth, engagement, and monetization with a leaner operation. Reels keeps attracting more advertisers and its impact on Meta’s advertising revenue is now neutral, unlike its negative effect in the past. The impressive results also display Meta’s success in creating better data analytics, campaign planning, and measurement tools using artificial intelligence.

Meta's Facebook is the largest social network in the world, with nearly 3 billion monthly active users. The growth in users and user engagement, along with the valuable data that they generate, makes Meta’s platforms attractive to advertisers. The combination of these valuable assets and our expectation that advertisers will continue shift their spending online bodes well for the firm’s top-line growth and cash flow.

We have increased our fair value estimate of wide-moat Meta to $311, from $278. With the stock more than tripling its 52-week lows, we now believe it is now fairly valued, with much faster revenue growth than initially anticipated this year and higher long-term margins now priced into the shares.

Meta's Facebook is the largest social network in the world, with nearly 3 billion monthly active users. The growth in users and user engagement, along with the valuable data that they generate, makes Meta’s platforms attractive to advertisers. The combination of these valuable assets and our expectation that advertisers will continue shift their spending online bodes well for the firm’s top-line growth and cash flow.

We are maintaining our $278 fair value estimate of Meta. While we commend the firm's timing of Threads, a social media app like Twitter, and are impressed with how quickly the app attained more than 100 million users, uncertainties regarding user retention in the long run and the monetization of Threads remain. If Meta applies its other apps’ advertising model while users stay and new ones join, then the likelihood of a two-sided network effect moat source, similar to Facebook and Instagram apps, increases, which could attract advertisers to the app. This could increase Meta’s fair value estimate by around 3%-6%.

Meta’s first-quarter results confirmed our views on Reels monetization, ad conversion improvement, margin potential, and an unharmed network effect moat source. We have increased our revenue projections and continue to expect margin expansion beginning in 2024, pushing our fair value estimate up to $278 per share from $260. While the share price of this wide-moat firm has increased more than 135% from its lows in November 2022, we believe it remains undervalued.

Meta's Facebook is the largest social network in the world, with nearly 3 billion monthly active users. The growth in users and user engagement, along with the valuable data that they generate, makes Meta’s platforms attractive to advertisers. The combination of these valuable assets and our expectation that advertisers will continue shift their spending online bodes well for the firm’s top-line growth and cash flow.

The Joe Biden administration is threatening to ban TikTok from the U.S. and talks about a possible sale of its U.S. operations to an American company have increased. At the same time, China may not approve a sale, as reported by The Information. In our view, the uncertainty surrounding the possible ban or sale of TikTok could benefit Snap, Meta’s Instagram, and Google’s YouTube. We are maintaining our $154, $260, and $16 fair value estimates for Alphabet, Meta, and Snap, respectively.

Meta reported better than expected fourth-quarter results despite currency headwinds, macro uncertainty, and deceleration in overall digital advertising growth. Meta also appears to have improved ad conversions on its apps and measurability, increasing demand from advertisers and lessening the impact of Apple’s moves. On the user front, the firm’s network effect remains intact, displayed by daily and monthly user growth. We are pleased with management’s effort to exert cost control while accelerating top-line growth. In addition, the firm’s continuing aggressive share buyback during the quarter and another buyback authorization support our Exemplary capital allocation rating.

Meta's Facebook is the largest social network in the world, with nearly 3 billion monthly active users. The growth in users and user engagement, along with the valuable data that they generate, makes Meta’s platforms attractive to advertisers. The combination of these valuable assets and our expectation that advertisers will continue shift their spending online bodes well for the firm’s top-line growth and cash flow.

The Wall Street Journal has reported that Meta Platforms could be held accountable for not complying with the General Data Protection Regulation, the European privacy rules that went into effect in 2018. The European Data Protection Board confirmed that it has reached a decision but will not disclose it for at least a month. While Meta is likely to appeal in what the Journal points out will probably be a lengthy process, we think the firm could ultimately be liable for up to $13 billion in fines (around 4% of revenue since the rules went into effect) or up to 2% of our $260 fair value estimate.

Meta reported mixed third-quarter results and its guidance for significant operating expense growth in 2023 was disappointing. We have also lowered our top line projections, which will likely further increase margin pressure next year. Our fair value estimate now stands at $260, down from $346. With uncertainty in the near term, we recommend patience with this wide-moat firm.

Meta is the largest social network in the world, with nearly 3 billion monthly active users. The growth in users and user engagement, along with the valuable data that they generate, makes Meta’s platforms attractive to advertisers. The combination of these valuable assets and our expectation that advertisers will continue shift their spending online bodes well for the firm’s top-line growth and cash flow.

Meta’s second-quarter results were again disappointing and the firm provided third-quarter revenue guidance well below expectations. However, our main takeaway from the numbers and the earnings call was that the main issue facing the firm is a potential downturn in the economy. The firm’s first year-over-year revenue decline indicates demand is slowing, reflecting economic uncertainty, the impact of Apple’s data privacy changes, and increasing competition. However, we were pleased with user growth, excluding a decline in Facebook users in Europe, due in part to the Ukraine war. With continuing user growth, we believe Meta’s network effect remains intact. We expect further monetization of Reels along with an economic turnaround to return top-line growth to low- to mid-teen rates beginning in the second half of 2023. We are lowering our projections for 2022 and beyond, reducing out fair value estimate to $346 per share from $384. We continue to view this wide-moat firm as attractive.

Meta is the largest social network in the world, with nearly 3 billion monthly active users. The growth in users and user engagement, along with the valuable data that they generate, makes Meta’s platforms attractive to advertisers. The combination of these valuable assets and our expectation that advertisers will continue shift their spending online bodes well for the firm’s top-line growth and cash flow.