Meta Platforms, Inc.

FB Details

Meta Platforms, Inc. (NASDAQ: FB) focuses on building technologies that allow people to engage and share via mobile devices, laptops, virtual reality headsets, and in-home devices. It operates through 1) Facebook Family of Apps (FoA) comprises Facebook, Instagram, Messenger, WhatsApp, and other services, and 2) Facebook Reality Labs (FRL), which includes consumer hardware, software, and content for augmented and virtual reality.

Q1FY22 Results:

• Growth in Topline: The company reported YoY growth of 6.64% in revenue to USD 27.91 billion in Q1FY22 (ended March 31, 2022) from USD 26.17 billion in Q1FY21. The FoA segment, which accounted for 97.51% of the total revenue in Q1FY22, increased 6.15% YoY, attributable to 6.13% growth in Advertising revenue (which constituted 96.74% of the total FoA segment revenue in Q1FY22) driven by increased ads delivered and improved average price per ad.
• Decline in Profitability: In Q1FY22, FB's net income decreased to USD 7.47 billion from USD 9.59 billion in Q1FY21.
• Strong Balance Sheet: As of March 31, 2022, the company had cash and cash equivalents (including short-term investments) of USD 43.89 billion and no outstanding debt.
• Share Repurchases: In Q1FY22, FB repurchased 34 million common shares for an aggregate consideration of USD 9.39 billion. The company had the remaining USD 43.89 billion available under it repurchase authorization at the end.

Key Risk:

• Regulatory Risk: Facebook's operations are governed by complex regulations governing privacy, data use and protection, content, competition, safety and consumer security, and other related areas, all of which are difficult to interpret. The company's reputation, revenues, and earnings could be harmed if tighter rules are issued or if required laws are not followed.
• Competition Risk: FB competes against big firms such as Alphabet, Amazon, Apple, ByteDance, and others in the Communication Services industries, with more significant financial and operational capabilities. Its operations could be harmed by competitors' improved innovation or superior product development.
• Higher Tax rate: The company expect in the absent of any changes to U.S. tax law, full-year 2022 tax rate to be above the first quarter rate and in the high teens.

Outlook:

• Q2FY22 Guidance: As of Q1FY22, FB expects to clock revenue of USD 28 – 30 billion in Q2FY22, assuming forex headwind to the tune of 3% YoY based on current exchange rates. Further, the company expect 2022 total expenses to be in the range of USD 87-92 billion, lowered from our prior outlook of USD 90-95 billion. Expense growth to be driven primarily by the Family of Apps segment, followed by Reality Labs.
• Capex Guidance: FB expects to spend USD 29 – 34 billion on capital expenditures, including principal payments on finance leases.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

FB's stock price has fallen 37.48% in the past six months and is currently leaning towards the lower end of its 52-week range of USD 169.00 to USD 384.33. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 220.04.

Considering the significant correction in the stock price, debt free company, solid margins, positive outlook, associated risks, and current valuation. We recommend a "Hold" rating on the stock at the current price of USD 198.145, up 13.50% as of April 28, 2022, at 07:23 AM PDT.

Three-Year Technical Price Chart (as on April 28, 2022, at 07:23 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: All forecasted figures and industry information have been taken from REFINITIV.  

Note 3: The report publishing date is as per the Pacific Time Zone.