Meta Platforms, Inc. (META) Valuation Report

Intrinsic Value
$660B

Value Per Share
$251 -48%

Price Target
$281 -42%

Market Cap
$1.2T

Enterprise Value
$1.2T

Price
$485.27 -0.37%

Dividend Yield
0.4%

Adjusted Yield
0.5%

TTM Growth Margin Ratio Yield
Revenue $135B 15.7% 9.0x
Gross $109B 19.2% 80.8% 11.1x
EBITDA $59B 56.9% 43.8% 20.5x
EBIT $47B 61.5% 34.7% 25.9x 3.9%
Profit $39B 68.5% 29.0% 31.6x 3.2%
FCFF $12B 263.5% 8.5% 105.0x 1.0%
FCFE $37B 110.1% 29.3% 33.6x 3.0%
Cost of Equity = 9.2% | Cost of Capital = 9.0%Currency: USD | Updated:
Sector: Communication Services | Industry: Internet Content & Information | Read more...

Meta Platforms, Inc.
engages in the development of products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, and wearables worldwide.
It operates in two segments, Family of Apps and Reality Labs.
The Family of Apps segment offers Facebook, which enables people to share, discuss, discover, and connect with interests; Instagram, a community for sharing photos, videos, and private messages, as well as feed, stories, reels, video, live, and shops; Messenger, a messaging application for people to connect with friends, family, communities, and businesses across platforms and devices through text, audio, and video calls; and WhatsApp, a messaging application that is used by people and businesses to communicate and transact privately.
The Reality Labs segment provides augmented and virtual reality related products comprising consumer hardware, software, and content that help people feel connected, anytime, and anywhere.
The company was formerly known as Facebook, Inc.
and changed its name to Meta Platforms, Inc.
in October 2021.
Meta Platforms, Inc.
was incorporated in 2004 and is headquartered in Menlo Park, California..

Full-time employees: 67,317 | HQ: Menlo Park
Website: https://investor.fb.com

Valuation

Input

➜ Revenue Growth

➜ EBIT Margins

➜ Reinvstment Efficiency

➜ Cost of Capital

➜ Tax

META Valuation Output

Terminal value

$837B

+ PV Terminal Value

$359B

+ PV FCFF

$273B

= Sum of PV

$632B

+ Cash

$65B

- Debt

$37B

= Intrinsic Value

$660B

Value Per Share

$251

Overvalued by 48% vs its $485 Price

1-Year Price Target

$281 (-42%)

10-Year Fundamental Projections for Meta Platforms, Inc. (META)
YearGrowthSalesEBIT %EBITTaxNOPATReinvestmentROICFCFFWACCPV FCFF
TTM 8.0% $135B 34.7% $47B 17% $39B $13B 31% $12B 9.0% --
2025 8.0% $146B 34.7% $51B 17% $42B $9.8B 31% $32B 9.0% $29B
2026 8.0% $157B 34.7% $55B 17% $45B $11B 31% $35B 9.0% $29B
2027 8.0% $170B 34.7% $59B 17% $49B $11B 31% $37B 9.0% $29B
2028 8.0% $184B 34.7% $64B 17% $53B $12B 31% $40B 9.0% $29B
2029 8.0% $198B 34.7% $69B 17% $57B $13B 31% $44B 9.0% $28B
2030 7.3% $213B 34.7% $74B 18% $60B $16B 30% $44B 8.9% $26B
2031 6.5% $226B 34.7% $79B 20% $63B $15B 30% $48B 8.8% $26B
2032 5.8% $240B 34.7% $83B 21% $66B $15B 29% $51B 8.7% $26B
2033 5.0% $252B 34.7% $87B 22% $68B $13B 28% $54B 8.6% $25B
2034 4.3% $262B 34.7% $91B 24% $69B $12B 27% $58B 8.5% $25B
♾️ 4.3% $274B 34.7% $95B 25% $71B $36B 8.5% $35B 8.5% --
How is META's expected return calculated?

The expected return is a percent (%) estimate of how much a stock's value will change per year. It is used to calculate META's 1-year price target by multiplying the stock's present value with (1 + expected return). The expected return is calculated using a stock's risk (cost of capital), excess returns, and dividend yield.

Expected Return = (1 + Cost of Capital) * (Cost of Capital * (1 + ROIC - Cost of Capital - Dividend Yield))
12.0% = 109.0% * (9.0% * 121.7%)

We exclude dividend payments because they aren't reflected in a stock's price. Note that excess returns are highly dependant on our estimate of invested capital and its return. Neglecting to capitalize expense items such as operating leases, R&D, brand name marketing expenses, may inflate the excess return estimate.

Growth

In the 12 months ending Q4'23 Meta Platforms, Inc. (META) grew revenues by 15.7%, from $117B to $135B - indicating an acceleration of revenue growth. META has a 5-year and 3-year revenue compound annual growth rate (CAGR) of 13.8% and 4.6% respectively.

Revenue Growth Estimates

Sustainable
5.8%
Fundamental
18.9%
Priced-in
13.4%

Bottom Line Growth Estimates

Fundamental Earnings Growth
0.1%
Fundamental EBIT Growth
11.3%
Priced-in FCFF Growth
8.0%

Looking at forward estimates, we can see that the market is pricing-in a 13.4% long-term revenue growth rate, while the financials indicate a future revenue growth rate between 5.8% and 18.9%.

Using the average of these 3 estimates we get a 12.7% long-term revenue growth for META.

What is META's sustainable revenue growth?

Similar to fixed vs variable costs, the sustainable growth rate shows how much we can expect the company to grow based on their reinvestment into the business, excluding variable demand and pricing. This rate may be helpful as a long-term baseline for the company.

(META) has invested $125B in total capital, consisting of $153B in book value of equity, plus $37B in total debt, less $65B in cash & equivalents.
By adding on the average reinvestment of $14B in the last 4 quarters on a TTM basis to the $125B capital base, and applying the current sales to capital ratio of 107.9%, we can expect the company to grow its revenue to $150B, implying growth of 11.6%. However, we assume at least one gap year for CapEx to transform into growth, so we divide the rate by 2 and get a 5.8% sustainable revenue growth.
Use your own judgement based on the type of business since it takes time for reinvestment to yield growth.

What are META's fundamental revenue & EBIT growth rates?

The fundamental growth rates analyze how much (META) is reinvesting into the business, adjusted for the quality of those reinvestments to come up with an estimate for a long-term future growth. Both fundamental and sustainable gorwt rate estimates attempt to use fundamentals in estimating growth.

Meta Platforms, Inc. (META) has reinvested an average of $14B on a rolling TTM basis, reflecting a reinvestment rate of 36.9%, calculated as:
Reinvestment / (EBIT - Tax) a.k.a. NOPAT.
By multiplying the reinvestment rate with the return on invested capital (ROIC) we get a long-term estimate for a growth in EBIT:
36.9% * 30.7% = 11.3% (Reinvestment rate * ROIC)

In order to convert this to a fundamental revenue growth rate, we analyze the relationship between EBIT growth and Revenue growth, and come up with a scaling factor of 166.8%. We then multiply the fundamental EBIT growth estimate by the revenue scaling factor and get an equivalent for a fundamental revenue growth rate of 18.9%.

What FCFF & revenue growth rates is the market pricing-in for META?

In order to justify the current $1.2T market capitalization given a 9.1% cost of capital, META needs to keep growing its un-levered free cash flows by 8.0% across many ( >10 ) years.

META's market implied FCFF growth rate of 8.0% =
1 + (Enterprise Value * Cost of Capital - FCFF) / (Enterprise Value + FCFF) =
1 + ($1.2T * 9.1% - $12B) / ($1.2T + $12B)

By analyzing the relationship between EBIT growth and revenue growth, we get a scaling factor of 166.8% that we apply to our implied FCFF growth in order to get the market implied revenue growth rate of 13.4%

Margins

Gross
80.8%
3.1% YoY
EBIT
34.7%
39.6% YoY
Profit
29.0%
45.7% YoY
FCFF
8.5%
241.3% YoY
Why is META scaling revenues by 12.9% relative to COGS?

META grew revenue by 15.7% in the last 12 months, and their COGS changed by 2.8% in the same period. This means that the company is scaling revenues 12.9% better than costs.

A company that has a scaling rate above 1:1 indicates efficient growth that may translate into added value in the bottom line. Conversely, if the rate is lower, e.g. 1:0.9, it shows that while the company managed to grow, their costs increased more than revenues.

Free Cash Flows

Reinvestment
-$13B
FCFF
$12B
FCFE
$37B
Net CapEx
-$17B
Simple FCFF
$44B
Change in WC
$3.8B

Note: cash flows in the table and chart are presented as inflows and outflows, meaning that positive numbers indicate how much a company has taken in, and negatives show how much cash has flown out.

What is included in META's $28B capital expenditures?

In the last 12 months META invested $27B in plant property & equipment (PPE) CapEx. By adding the $629M in acquisition expenses, we get a total CapEx of $28B.

How much is META reinvesting into the business?

In the last 12 months ending Q4'23, META made capital expenditures of $28B. By netting out the depreciation of $11B, we get a NetCapEx of $17B, indicating that the company invested in future growth.

Finally, we add on the change in Working Capital of -$3.8B, and get a Total Reinvestment of $13B.

By investing more than it depreciates, META is increasing its future growth assets.

How are META's $12B free cash flows to the firm (FCFF) calculated? META's $11,513,000,000.00 Free Cash Flows to the Firm (FCFF) =
$46,751,000,000.00 EBIT
- $7,683,500,000.00 Tax
- $27,266,000,000.00 Plant Property Equipment
- $629,000,000.00 Acquisitions
+ $11,178,000,000.00 Depreciation
+ $3,836,000,000.00 Change in Working Capital
- $14,027,000,000.00 Stock Based Compensation

Free Cash Flows to the Firm are important because they indicate how much a company has left over for all (debt & equity) investors.
It is a measure of the true bottom line for investors, as opposed to earnings and the simplified version of free cash flows (Cash from operating activities - PPE).

In the last 12 months META had $12B in free cash flows, indicating that the business has managed to create value for investors.

How are META's $37B free cash flows to equity investors (FCFE) calculated? META's $36,859,000,000.00 Free Cash Flows to the Equity (FCFE) =
$39,097,000,000.00 Net Income
- $27,266,000,000.00 Plant Property Equipment
- $629,000,000.00 Acquisitions
+ $11,178,000,000.00 Depreciation
+ $3,836,000,000.00 Change in Working Capital
+ $37,234,000,000.00 Total Debt today
- $26,591,000,000.00 Total Debt one year ago

Free Cash Flows to the Equity investors show how much the company has left over for shareholders.
It is an insightful metric when paired with FCFF for analyzing companies that have a lot of debt, as it can reveal the effect of interest rates on the value of equity.

When compared to FCFF, they should be roughly in-line, else we need to think about what causes the difference. In the last 12 months META had $37B in free cash flows to equity, indicating that the business can return capital in the form of dividends and buybacks.

Returns

ROE
25.5%
ROIC
30.7%
Sales to Cap
107.9%
How much excess returns (value) is META creating on average (19%), and how to calculate it?

ROE Excess Returns 16.3% = Return on Equity - Cost of Equity
ROC Excess Returns 21.7% = Return on Capital - Cost of Capital

Average Excess Returns = (ROE - Cost of Equity + ROIC - Cost of Capital) / 2

For every 1% of growth in its net and operating income, the value of META's stock changes by an average of 0.19%.

Excess returns are important because they help us estimate a company's target price.

If you are analyzing a company with a lot of R&D expenses, consider capitalizing them as an asset to get a better ROE & ROC estimate - You can use our automated spreadsheet.

Capital Structure

Equity
$153B
Debt
$37B
Cash
$65B
Interest Coverage
104.8x
Debt to EBITDA
0.63x
Debt to Capital
2.9%

Dividends & Buybacks

Adj. Yield
0.5%
Dividends + Buybacks - SBC
FCFE Payout
15.6%
% FCFE paid as Div + Net Buybacks
R-R Upside
-90.5%
FCFE yld. / Cost of Equity - 1

Meta Platforms, Inc. has transferred a total value of $5.7B to investors in the last 12 months. The required cash return (excluding expected growth) for META is $61B, or a 4.9% yield in the same period.

With an adjusted payout of 15.6%, META seems to be spending an affordable portion of its FCFE.

SEC Filings

Examine the details and validate data:

Historical SEC Filings

Headlines