Meta Platforms (FB)

Investing to dominate social media



Meta Platforms. We previously recommended Meta Platforms (FB) in Feb following its plunge following 1Q results. The concern then was changed to Apple’s iOS changes and new regulations in Europe have reduced the data available to deliver personalized ads. However, Meta is addressing such challenges. It is making major AI investments to build the most advanced models and infrastructure in the industry. Over the next year or two, it aims for these investments to drive better recommendations for people, higher returns for advertisers, and to increase its revenue growth. Longer-term, such technology investments can provide a sustainable competitive advantage over competitors. 


Meta remains a leading global Internet media platform. While troubles seem to be mounting for Meta, the size of Facebook’s user base remains huge. Monthly active people for its family of apps, including Facebook, Instagram, and Whatsapp, continue to grow and stood at 3.64 billion as of 1Q22. Meta is also taking steps to fend off competitors like TikTok – it will prioritize original content in its algorithms and will pay an additional bonus to Reels (Facebook’s short video format) creators who are publishing original content on Facebook.


Metaverse Update – Meta plans to launch a web version of Horizon later this year that will make it easy for people to step into metaverse experiences from more devices and platforms - eventually including Facebook and Instagram – without needing a headset. It expects to be meaningfully better at monetization than others in this space.


Valuation/Recommendation. Meta’s current valuation of 17.9x 2022F earnings is fair vs expected EPS growth in the mid-teens for 2022-2025. In addition, current earnings include substantial startup losses incurred by its Metaverse efforts. Excluding these losses, we estimate FB trades at 15x 2022F earnings on its core ad business.