Meta (FB)


Facebook, Inc. develops products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and in-home devices worldwide. It was founded in 2004 and is headquartered in Menlo Park, California. The company’s products include: 
  • Facebook, enables people to connect, share, discover, and communicate with each other 
  • Instagram, a community for sharing photos, videos, and private messages
  • Messenger, a messaging application 
  • WhatsApp, a messaging application that is used by people and businesses 
  • Facebook Reality Labs, an augmented and virtual reality product  
Recently the company has changed its name to Meta Platforms. In the following link, you may find more information about its exciting project.

Quick Stats

  • Revenues began to slow down in 2019, we could expect a yearly growth of 15%-20%.
  • Operating Margin has been stable for the last 8 years (swinging around 40%)
  • EPS CAGR of 39% since 2010
  • Outstanding Shares began to reduce under 1% yearly since 2018
  • ROI for the last six years above 20%
  • ROE for the last six years above 20%

Press Release (3Q 25-Oct)

  • Facebook Reality Labs will report as a separate segment on the next quarter - "we are dedicating significant resources toward our augmented and virtual reality products and services, which are an important part of our work to develop the next generation of online social experiences"
  • Expected to decrease Operating profit by $10B due to investments in FRL. - "committed to long-term vision"
  • Strong Balance Sheet: $58B in cash and equivalents vs $36B in Total Liabilities

Community Growth (Sep 2021 increase year-over-year)

  • Facebook Daily Active Users 6% 
  • Facebook Monthly Active Users 6%
  • Family Daily Active People 11%
  • Family Monthly Active People 12%
Facebook daily/monthly active users: The number of daily or monthly active users on Facebook as a website and app.
Family daily/monthly active people: The number of daily or monthly active people on Facebook ‘family’ owned services, such as Facebook, Messenger, WhatsApp, and Instagram

Annual Report 

Business model 

  • All revenues come from advertising

Risks

  • Complex and evolving Government regulation mainly regarding privacy, data use and data protection, content, competition, consumer protection, and other matters.
  • "Unfavorable media coverage negatively affects our business from time to time." - In most cases, this will be the reason for the price volatility but will not necessarily affect the business fundamentals. 
  • CEO has control over key decision-making as a result of his control of a majority of the voting power of our outstanding capital stock (57% voting rights). As the CEO is the founder, this might actually be a favorable point for the future prosperity of the company. It is a sure thing that Mark Zuckerberg's decisions will aim for the highest success. 
  • Pandemic Growth. It is true that it has helped a lot to increase revenues due to the shift of commerce from offline to online. However, it is possible that this growth will slow down.

Financial Summary (last five years)

  • Revenue 5x 
  • Net income 5x
  • EPS 3x
  • FCF 15% (CAGR)
  • The Average Revenue Per User was $32. 03 which was a 10% increase (2019-2020)
  • Research & Development has been increasing in the last few years. This is probably going to the Metaverse segment. 

Salaries

"Our employees' total compensation package includes market-competitive salary, bonuses or sales commissions, and equity". Giving a portion of the equity to employees is a great strategy to keep them motivated to improve overall performance. 

Executive Compensation

Philosophy: Hire and retain a talented team
Design: Heavy equity compensation (Restricted Stock Units - RSU) + cash compensation below the market levels. 

Competitors 

We may consider Google as one of FB's main competitors as both companies generate most of their revenue with digital advertising. GOOGL’s AdWords is one of the toughest adversaries Facebook faces. There are other social media platforms such as Tik Tok, Twitter, Linkedin, etc. that may also be considered competitors but we have to take into account that FB owns Instagram and Whatsapp which puts the other social media platforms in a difficult position to steal a sustainable market share from FB. 
Moreover with some comparisons; 

 

Meta Platforms (FB)

Alphabet (GOOGL) 

Market Capitalization

$927B

$1.9T

Outstanding Shares

2.8B

633.8M

Price

$333

$2,484

PE Ratio

23.81

27.39

EPS CAGR 5 years

21%

42%

Strong Balance Sheet

No Debt

No Debt

ROI (Average L5Y)

27.4

19

ROE (Average L5Y)

25.8

19.2


Competitive Advantage

  • Technology Innovation (investments in VR + Metaverse Project)
  • Intellectual Property
  • Network Effect

Executive Team

Main shareholders

  • Mark Zuckerberg (89% B) - 57% voting rights
  • Dustin Moskovitz (5.8% B) - 3.8% voting rights 
    •  Helped launch Facebook in 2004 with then-roommate Mark Zuckerberg from their Harvard dorm. Left the company in 2008 and cofounded Asana, a workflow software company.
  • Eduardo Saverin (10.4% B) - 6.9% voting rights
    • Cofounded Facebook with Harvard classmate Mark Zuckerberg in 2004
  • Black Rock (6.6% A) - 2.3% voting rights
  • Vanguard (7.6% A) - 2.7% voting rights
  • FMR LLC (5.2% A) - 1.8% voting rights
We have to take into account the following distribution regarding the outstanding shares:
  • Class A: 2.4B outstanding shares (holders are entitled to one vote per share)
  • Class B: 440M outstanding shares (holders are entitled to ten votes per share)

Executives Salaries and Shares Ownership

The following images were extracted from the Annual Meeting & Proxy Statement (May 2021)

Independent Directors & members of BoD (page 40)

Executives (page 45)

Shares Ownership (page 61)

Name 

Annual Salary 

Value of Shares ($)

Times Salary Value Shares

Mark Zuckerberg

1

131.6B

1,32x1011

Sheryl K. Sandberg

925k

466.2M

504x

David M. Wehner

830k

21.3M

25x

Mike Schroepfer

830k

333M

401x

Christopher K. Cox

830k

87M

105x


Valuation

We should take into account three possible scenarios:
Optimistic (Revenue growth 25%, EBIT Margin 35%, Multiples above 5-year average)


Standard (Revenue growth 20%, EBIT Margin 35%, Multiples 5-year average)


Pessimistic (Revenue growth 15%, EBIT Margin 35%, Multiples under 5-year average)


Conclusion

  • The company has great fundamentals and a potential sustainable growth
  • However, its intrinsic value seems to be slightly under its current market price, this might indicate that is not the best time to buy it.
  • We should always aim for a double-digit rate of return. Unfortunately, we only obtain it in the optimistic scenario.

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