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Facebook: Executing Well To Fend Off The Attack Of The Clones - 'Initiating Coverage At Buy'

Oct. 04, 2021 2:12 PM ETMeta Platforms, Inc. (META)SNAP, GOOG30 Comments
AlphaTech Equities profile picture
AlphaTech Equities
930 Followers

Summary

  • We see higher video consumption driven by Stories, Reels, FB Watch and IGTV as the key driver of engagement, driving impression per user @4% CAGR over the next four years.
  • Corroborated by the increase in advertiser demand, we expect eCPM to grow @7% CAGR from 2021E to 2025E, forming the biggest driver of revenue growth.
  • Our forecasts suggest that Facebook will drive MAUs in the mid-single digits (~5%) as it continues to increase its exposure to emerging markets.
  • Our detailed analysis on Apple's latest IDFA upgrade suggests that the risks to revenue remains manageable with the worst case hit of 5% to FB's top-line (Figure 20).
  • Despite the recent run up in prices, we see Facebook's shares as attractively priced and use a combination of DCF and NTM PE valuation methodologies to arrive at a price target of $456, imputing an upside of 33% from its current share price.

Young woman using smart phone

Urupong/iStock via Getty Images

Since inception in 2004, Facebook (FB) has grown swiftly to become the world's largest social media platform company with 2.9bn monthly active users (MAUs), representing 46.6% penetration of all smartphone users in the world. Spearheaded by founder and the poster boy of new

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AlphaTech Equities profile picture
930 Followers
AlphaTech Equities aims to bring institutional grade research to retail investors aiming to invest in technology stocks. We provide in-depth research anchored on detailed financial models. We go through annual reports, investor day presentations, third party research reports and earnings call transcripts to inform our investment thesis. We build detailed five-year quarterly models on all companies we cover. Evidenced by our reports in the public domain, investors will find institutional grade quality and flair of investment writing covering the technology sector. We value businesses using 12-month forward PE multiple bands and DCF models where possible. We aim to be the best in class equity research house for all tech companies primarily in the US. Analysts that contribute to our reports have multiple years of bulge bracket investment banking experience writing equity research reports and often hold accreditation such as an MBA, CFA, ACCA or Masters in Finance from leading business schools around the world.

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Comments (30)

I
Facebook will probably go up. If you own it you will probably make lots of money. But owning it is like being the gun dealer who sells a gun for profit knowing that the buyer is going to murder someone with it. If thats how you want to make money that is between you and your god.
AlphaTech Equities profile picture
@InvestinBBB Difficult if not impossible to find a business which is ethical 100% of the time. Facebook for all its faults supports millions of small and medium businesses and feeds their families. The reason why its in the news so much is because the political class is afraid of its potential. I am not saying that everything that Facebook does is correct. I am saying that despite its many faults it is an important conduit for the success of millions of businesses. I am sure the latest whistle blower episode will make it rethink its approach to everything that's been revealed about it and help it grow both as a company and as people which have great power and its accompanying responsibility to keep the fabric of our society intact. In the meanwhile, if you can let me know of a company that is ethically correct 100% of the time and has perfect moral compass, I will be happy to write up a report on it even if its outside my Tech sector expertise.
I
@AlphaTech Equities congress is going to force FB to rethink itself. Imagine what happens when all algorithm decisions are exempted from Section 230 protections. No company is perfect, and I won’t pretend it to be, but when FB IPOd I knew the price of the stock would get here someday and I still never bought it. I chose my conscience over profit - something FB has never done.
M
@AlphaTech Equities i dnt expect a company to be 100% ethical but FB has none.
jojopuppyfish profile picture
Thanks for the breakdown on FB Watch. It doesn't get mentioned very much....especially by Facebook.
I think Watch is underutilized and could easily go head to head with Youtube.
AlphaTech Equities profile picture
@jojopuppyfish Amen to that! We have all been waiting for a YouTube alternative for sometime now. The number of ads YouTube is showing is cumbersome for the audience.
t
People freaking out about FB are the same ones who bitched about FB re: the elections, russian hacking, etc.

FB is a long long long buy and hold.
X
Great work, very informative thank you.
Just to clarify: Marketplace has c800M MAU, but is there any data such as AAC (annual active customers -> people who actually made a purchase)? Of these 800M monthly users, how many of them actually buy something? For example in China, Alibaba's marketplaces has c900M MAU and c800M AAC, the ratio is pretty great.

Given the nature of FB (a social media), I wouldn't be surprised to see a huge gap between AAC and MAU of marketplace. Here in France, I actually don't know anyone using Facebook's marketplace : we either use the local classified leaders, or a marketplace like Amazon.
AlphaTech Equities profile picture
@Xkdodifkdl That's a good point. Unfortunately Facebook does not disclose Annual Active customers or buyers as the matrix is called by eBay. I agree on the fact that the chasm between the AAC and MAU will be much broader for FB vs others. Also more importantly FB does not disclose other important matrix like Value of goods bought or sold on Marketplace or revenue which would have made for an interesting sum of the parts valuation. Alas!
g
Personally, I think this is going to be a high problem for Facebook. I just deleted all of my messenger messages. Trying to reset my password and can't. Deleting everything once I can. Facebook is toxic. I'm done. Not going to miss it as I have been slowly using it less and less. Kids don't use it much. Rough road ahead in my opinion. Wish I bought some around the time of the ipo. If I did I would be dumping it all at this level.
g
@gogogoapple just tried to log on and it says the HTTP portal is currently shutting down I guess they are going offline for a while. This could very possibly crash
S
You got very lucky in the publication date of this article:)
AlphaTech Equities profile picture
@Steve971 Time will tell :)
c
RIP Facebook
szeducate profile picture
So FB creates a negative image for teenage girls. So by not showing think younger girls on FB that will correct the situation. Give me a break. NO mention of what Tic Tok is doing, but FB is always in the cross hairs. Tune into any website and you generally do not see fat models hawking any product. If a young girl has a negative image of herself, then what are you going to do? Keep her in the house so she does not see any TV ads, billboards, or read a newspaper. This is so trite as to be beyond the pale. As a large shareholder of FB, I am often in strong disagreement with many of the the things it does, but this is just too picky even for me.
S
@szeducate Yeah, high school itself is bad for teenage girls, lol.

Most teenagers are hyper-sensitive in general, everything affects your mental health around that age, lol.
k
Sell...advertisers are running for the hills.
S
Bullish on FB. Very original take
Great time to suggest a Buy!!! Are you sure you don’t have a direct or indirect position?
B
Very thorough article, mentions many of the reasons FB is a great buy on this pullback. One of the biggest imo you only mention glancingly, last month my son convinced me to get the new oculus quest 2. Totally amazing and immersive. Takes gaming to a new level and ups social connection at the same time. VR will emerge as a huge growth driver for them and their established platform is perfect to build on with VR. Brilliant investing so much into VR will pay off in spades.
AlphaTech Equities profile picture
@Blazignike Other revenue (VR and payments) constitutes only 2% of overall revenue for FB so decided not to cover in great detail in this already long report. We do have some numbers on that business which are hoping to publish separately.
tikigod18 profile picture
I have always said I HATE FB, but love the stock. Where do advertisers go? SNAP??They need to lose eyeballs, and frankly this country has the attention span of a gnat, especially with China flying over Taiwan, Debt ceiling face off, two Fed officially gone, and Clarida now exposed as a stock trader, resignation likely coming. Congress cannot handle all this and as for the administration.....enough said. IMO, RL, and their skinny girl adds are worse for anorexic girls than anything. NO one looks like those models.
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