Meta Platforms Q2 FY12/24 Earnings Review (No Paywall)
The Reductionists' Take
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Google It.
by Alex King, CEO, Cestrian Capital Research, Inc
The entire Internet now features:
- Quasi-expert discussion of the ROI achieved by Meta on its AI investments
- Analysis of what hyperscaler capex means for Jensen Huang's retirement plan
- An emerging science of Zuck's gold chain count vs. earnings beat potential. (I like this one. It's in the same vein as what-color-tie-is-Chairman-Powell-wearing-at-the-FOMC-press-conference). Semiotics in action!
As regards Meta Platforms stock, in all honesty it doesn't matter, or in any event I don't think it matters.
I think what matters is:
- Revenue growth is still pretty good, slower than it was but still pretty good
- Cashflow margins took a slight hit from the capex frenzy but they are still pretty good
- Even after a monster run from the bear market lows, the stock stil trades for about the same multiple of cashflow you'll pay for a defense contractor.
If you want to cut to the chase, we continue to rate at Hold (we rated at Accumulate between $96-157/share, the stock is now $510, so it's up 3-5x vs where we said Accumulate), and we have a price target of $676.
If you want to get into the weeds, here's the weeds.
Headline Financials
In short:
- Revenue growth ticked down a little to +22% vs PY on the quarter; that's a nag in my view because $PINS also saw a slowdown. Nobody cares yet though; so it doesn't matter to the stock yet.
- EBITDA margins continue to climb - now 58% on a TTM basis.
- Unlevered pretax free cashflow margins dipped a point to 37% on a TTM basis; this is mainly due to capex ticking up.
- The balance sheet now features just shy of $40bn net cash - more net cash than any major nation state I can think of - and more than Microsoft, post their Activision acquisition!
Let's turn to more detailed financials, valuation analysis, our stock chart and how we get to that price target.
Fundamental Analysis
Here's our detailed take on Meta Platforms fundamentals.
Valuation
The stock is inexpensive on fundamentals in my view - I think it can be a justifiable buy on the cashflow multiple alone.
Technical Analysis
I think the price is headed to $676, the 1.618 Wave 3 extension of the Wave 1 that ran from the post-IPO lows to the 2021 bull market highs, placed at the Wave 2 low.
You can open a full page version of this chart, here.
Stock Rating
We rate META at Hold.
Questions?
If you have questions about any of the numbers, charts, anything, reach out in comments to this note or on social media (Twitter here, StockTwits here, LinkedIn here).
Cestrian Capital Research, Inc - 31 July 2024
DISCLOSURE - Cestrian Capital Research, Inc staff personal accounts hold no positions in $META save via $TQQQ, $UPRO, $QQQ3 and $3USL.