- Facebook has consistently received bad press in the news. It's hated by both the right and the left.
- The company, with its market-leading position, is still seeing consistent growth, with almost 10% YoY user growth. ARPU is remaining incredibly strong.
- The company has a strong FCF which can be expected to continue growing consistently. This will help the company drive strong shareholder rewards.
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Meta Platforms (NASDAQ: FB), with its almost $1 trillion market capitalization, is consistently in the news for all of the wrong reasons. The company is hated by the left for its refusal to moderate false statements and it's hated by the right for its refusal to let anything be posted. However, despite the consistent dislike of the company, Meta (referred from here as Facebook) has an ability to drive consistent returns.
At the basis of Facebook and its ability to generate shareholder returns are its active users.
Facebook has steadily grown its monthly active users while maintaining a constant ratio for DAUs / MAUs. The company's MAUs have grown YoY from 1.785 billion to 1.93 billion. That represents almost 10% MAU growth for a company that's already incredibly well known and established. At its fundamental level, it represents continued FCF growth.
The company's ARPU, globally, also has remained incredibly strong. The company has hit $10 / user, roughly 33% YoY growth, supported by reopening from the panic and continued advertising spending. The company's average annual revenue is roughly $40 / user, which with its users is almost $80 billion in annual revenue.
Facebook Financial Breakdown
The company's overall financials remain incredibly strong driving the company's cash flow.
Facebook Financial Breakdown - Facebook Investor Presentation
Facebook has seen its revenue remain incredibly strong, with "Other" business revenue such as Oculus annualized at almost $3 billion. The company's overall revenue, still carried by advertising, is at almost $120 billion / year. The vast majority of the company's revenue comes from the US & Canada, making up ~40%, with Asia-Pacific / Europe roughly the same size.
The company is continuing to invest in its business as well. Its expenses as a % of revenue are reasonably high at 64%, with a 36% margin. Out of this, the company is investing heavily in R&D with R&D making up 22% of expenses (roughly $6 billion quarterly). That continued spending leaves 36% of the company's cash after its hefty investments.
Facebook EPS - Facebook Investor Presentation
Putting this all together in relation to the company's ~$310 share price and Facebook has continued to drive substantial earnings. The company's current P/E based on LTM is at ~22 implying a ~4.5% FCF yield. Consensus EPS is expected to continue growing, reaching almost $18 / share for 2024. That consistent growth would put the company's 2024 EPS at ~17.
Facebook has an almost $60 billion cash position on the basis of this strong cash flow. Despite the company's continued share offerings, in the form of RSUs, to employees, it's managed to steadily decrease its outstanding shares, albeit at a slow rate. On the basis of the company's strong earnings, it announced a $50 billion increase in its share repurchase authorization.
The company clearly thinks its share price is undervalued. In 3Q 2021, it repurchased almost $15 billion worth. It has the cash to use this $50 billion authorization, using it to repurchase almost 6% of the company's remaining outstanding shares. These subtle steady share repurchases from massive cash flow remind us of where Apple (NASDAQ: AAPL) was a decade ago.
Facebook Other Businesses
For Facebook's growth, as the company chases the dream of "Meta," its other businesses are worth paying close attention to.
Facebook Other Business - Facebook Investor Presentation
Facebook's other businesses began performing significantly better with the release of the latest Oculus Quest. Over the last 12 months, the company has seen almost $3 billion in annual revenue, vs. ~$1.2 billion for the prior year. The company is seeing its other businesses slowly become a more relevant part, and businesses like Meta can help support that.
Facebook Shareholder Return Potential
Facebook's shareholder return potential is based on the company's continued cash flow. The company is focused on steadily reducing outstanding shares, and using its cash flow, and its ability to regularly do large buybacks ($15 billion in 3Q 2021), we expect the company should be able to repurchase on the order of 4%-5% annually.
The company hasn't turned toward dividends or anything of the such. We expect it to continue casually repurchasing shares, in the same sense that Apple did a decade ago. Before investors realize, with its EPS growing steadily, the company will be able to repurchase a substantial number of shares. That'll drive continued shareholder returns.
Facebook's risk is, they're in the midst of doing something no other social media company has done. They're attempting to stay relevant. Traditionally social networking companies have been fads almost, someone comes along and does it better than the previous company. Facebook has found a way to make massive amounts of ad profits, but it needs to stay popular.
So far, they've managed to do that, but in the internet business, nothing is guaranteed.
Facebook's a great reliable company to invest with in spite of the substantial amount of noise around the company. The company's core is a reliable business generating substantial FCF. The company's revenue per user is growing as the number of users grows in lockstep, meaning EPS is expected to grow at low double-digits annually.
At the same time, the company recently increased its share buyback authorization by a massive $50 billion. The company bought back almost $15 billion of stock in the most recent quarter highlighting how undervalued it felt its stock was. It has the ability to repurchase stock at the mid-single digits going forward driving long-term shareholder rewards.
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This article was written by
The Value Portfolio specializes in building retirement portfolios and utilizes a fact-based research strategy to identify investments. This includes extensive readings of 10Ks, analyst commentary, market reports, and investor presentations. He invests real money in the stocks he recommends.He is the leader of the investing group The Retirement Forum with features including: model portfolios, macro overviews, in-depth company analysis and retirement planning information. Learn more.
Analyst’s Disclosure: I/we have a beneficial long position in the shares of FB either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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