Meta Platforms builds technology that helps people connect, find communities, and grow businesses. Their products enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality (VR) headsets, wearables, and in-home devices. Meta is moving
beyond 2D screens toward immersive experiences like augmented and virtual reality to help build the metaverse, which they believe is the next evolution in social technology.
Meta reports financial results for two segments:
– Family of Apps (FoA)
– Reality Labs (RL).
For FoA, Meta generates substantially all of our revenue from selling advertising placements to marketers. Ads their platforms enable marketers to reach people based on a variety of factors including age, gender, location, interests, and behaviors. Marketers purchase ads that can appear in multiple places including on Facebook, Instagram, Messenger, and third-party applications and websites.
RL generates revenue from sales of consumer hardware products, software and content.
Competitors
Alphabet (Google and YouTube), Amazon, Apple, ByteDance (TikTok), Microsoft, Snap (Snapchat), Tencent (WeChat) and Twitter.
Key community metrics
| year-over-year increase % | 2021 | 2020 | 2019 | 2018 | 2017 | 2016 |
| Family daily active people (DAP) | 8% | 15% | 11% | – | – | – |
| Family monthly active people (MAP) | 9% | 14% | 9% | – | – | – |
| Facebook daily active users (DAU) | 5% | 11% | 9% | 9% | 14% | 18% |
| Facebook monthly active users (MAU) | 4% | 12% | 8% | 9% | 14% | 17% |
| Ad impressions delivered | 10% | 34% | 33% | 22% | 15% | – |
| Average price per ad | 24% | (10)% | (5)% | 13% | 29% | – |
| Avg Rev per person (ARPP) | 22% | 10% | 17% | 24% | 26% | 34% |
Note: average price per user is not a reliable metric for performance as this is varied to control demand. It is not a strong indicator of growing or falling demand. Ad impressions delivered on the other hand is a good measure.
– Family daily active people (DAP) was 2.82 billion on average for December 2021
– Family monthly active people (MAP) was 3.59 billion as of December 31, 2021
• Facebook daily active users (DAUs) were 1.93 billion on average for December 2021
• Facebook monthly active users (MAUs) were 2.91 billion as of December 31, 2021
Consolidated segment results
| 2021 | 2020 | 2019 | 2018 | 2017 | 2016 | ||
| Revenue (change yoy) | 37% | 22% | 27% | 37% | 47% | 54% | |
| Family of Apps | 36% | – | – | – | – | – | |
| Reality Labs | 100% | – | – | – | – | – | |
| Operating Margin | 40% | 38% | 34% | 45% | 50% | 45% | |
| Family of Apps | 49% | 46% | – | – | – | – | |
| Reality Labs | (448)% | (581)% | – | – | – | – | |
Highlights
2021
Advertising revenue growth in the second half of 2021 was adversely affected by reduced marketer spending as a result of limitations on ad targeting and measurement tools arising from changes to the iOS operating system. Growth from pandemic has moderated in many regions which also affected second half of 2021. Meta may experience reduced advertising demand and related declines in pricing in future periods which could adversely affect advertising revenue growth.
Introduced new features such as Reels, which is growing in usage but is not currently monetized at the same rate as our feed or Stories products.
Expect heavy 2022 capital expenditures, in the range of $29-34 billion. It would be good if Meta also gives a break down on how much cap-ex is towards RL. In 2022, Meta also expect that year-over-year total expense growth rates may significantly exceed year-over-year revenue growth rates, which would adversely affect our operating margin and profitability.
Favorable impact to Revenue by weakening of dollar. i.e. due to weaken dollar revenue increased by $1.6 billion.
$44.54 billion for repurchases of our Class A common stock.
Federal net operating loss carry-forward was $10.61 billion and federal tax credit carry-forward was $527 million. Meta anticipates the utilization of a significant portion of these net operating losses and
credits within the next two years. This has been accounted for in the income statement prediction for valuation.
2020
$6.3 billion share re-purchase
Additional $25 billion is authorized for stock re-purchase
$6 billion invested in Reliance Jio platform
2019
Expense growth was greater than revenue growth but by 5%.
DAU plateaued in North America and Europe. Main DAU growth from India, Indonesia, and Philippines.
Decrease in price per ad by 5% is because increase in number of ads delivered as stories.
$4.2 billion share repurchased
2018
User growth is starting to slow.
For the first time Instagram is mentioned under developed eco-system.
Expense growth greater than revenue growth. This trend is expected to continue in the next year as well.
DAU in US, Canada and Europe has plateaued.
Price per ad increased due to increased demand for ad inventory.
$12.9 billion stock repurchase
2017
Increase in revenue is due to more ads being shown on the News feed.
Repurchased $2 billion stock.
Working Capital Position
| Value | Median | Industry Median | Notes | |
| Current ratio | 3.15 | 9.91 | 2.57 | – |
| Cash Ratio | 2.27 | 8.64 | 1.56 | – |
| Cash to Debt | 3.46 | 16.22 | 7.38 | Meta does not have any debt, only operating lease liabilities |
| Debt to Equity | 0.11 | 0.09 | 0.14 | – |
| Interest Coverage | N/A | – | – | Meta does have any debt. |
Meta has very strong cash flow from operations and it does not have any debt. Meta is in a very strong financial condition.
Operating Margin
| 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 |
| 35% | 45% | 49.70% | 44.62% | 33.93% | 38.01% | 39.65% |
Operating margin was high in 2016, 17 and 18 because meta started running ads in News feeds. Operating margin dipped in 2019 due to $5 billion fine. Without this operating margin for 2019 is 41%. In 2020, due to pandemic Meta had to lower price per ad due to lower demand which also meant lower revenue growth hence impacting operating margin. In 2021, operating margins is being impacted due to heavy cap-ex as Meta continues to invest in data centers, servers, office facilities, and network infrastructure.
I believe a more realistic operating margin for Meta is around 35% – 40% which was before Facebook started ads on it’s news feed hence boosting it’s margins temporarily.
Returns
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | |
| RoE | 19.7% | 23.84% | 27.9% | 19.96% | 25.42% | 31.10% |
| RoIC | 31.3% | 41.4% | 46.3% | 28.5% | 35% | 38.82% |
| RoA | 17.87% | 21.32% | 24.32% | 16.02% | 19.92% | 24.21% |
RoA for Meta is much lower that RoE and RoIC because of gurufocus’s RoA calculation uses total assets which includes large cash and marketable securities which is non-operating asset. Current RoA with only operating assets is ~33%
Income analysis
| 2016 | 2017 | 2018 | 2019 | 2020 | 2021 |
| 1.57 | 1.52 | 1.32 | 1.96 | 1.33 | 1.46 |
Enterprise DCF Valuation
This value for Meta is based on revenue growth estimates of 20% for next 5 years and 15% for the following 5 years.