- July 29, 2022
- Posted by: Ramkumar
- Category: Posts

Valuation Of Meta
For the first time in its history, ๐ ๐ฒ๐๐ฎ ๐๐ฎ๐ ๐ถ๐๐ ๐ฎ๐๐ฒ๐ฟ๐ฎ๐ด๐ฒ ๐๐๐ฒ๐ฟ๐ ๐ฑ๐ฒ๐ฐ๐น๐ถ๐ป๐ฒ in its platform. The markets didn’t take it lightly, and thus, ๐๐๐ญ๐’๐ฌ ๐ฆ๐๐ซ๐ค๐๐ญ ๐๐๐ฉ ๐๐๐๐ฅ๐ข๐ง๐๐ ๐๐ฒ ๐๐%, ๐๐ง๐ ๐ข๐ญ๐ฌ ๐ฌ๐ก๐๐ซ๐ ๐ฉ๐ซ๐ข๐๐๐ฌ ๐๐ฎ๐ซ๐ซ๐๐ง๐ญ๐ฅ๐ฒ ๐ญ๐ซ๐๐๐ ๐๐ญ $๐๐๐.๐๐.
Some of the reasons for this drop:
1)TikTokย has emerged as a ๐๐ฒ๐๐ฒ๐ฟ๐ฒ ๐ฐ๐ผ๐บ๐ฝ๐ฒ๐๐ถ๐๐ผ๐ฟ ๐๐ผ ๐๐ฎ๐ฐ๐ฒ๐ฏ๐ผ๐ผ๐ธ, ๐ฒ๐๐ฝ๐ฒ๐ฐ๐ถ๐ฎ๐น๐น๐ ๐ถ๐ป ๐๐ณ๐ฟ๐ถ๐ฐ๐ฎ๐ป ๐ฎ๐ป๐ฑ ๐๐ฎ๐๐ถ๐ป ๐๐บ๐ฒ๐ฟ๐ถ๐ฐ๐ฎ๐ป ๐ฐ๐ผ๐๐ป๐๐ฟ๐ถ๐ฒ๐. However,ย Mark Zuckerberg acknowledges that the user engagement has dropped and hopesย Reelsย could bring back the lost users.
2)Due toย Apple‘s privacy feature, iPhone users have refused permission for Meta to look at their browsing history, ๐บ๐ฎ๐ธ๐ถ๐ป๐ด ๐ถ๐๐ ๐ฎ๐ฑ ๐๐ฎ๐ฟ๐ด๐ฒ๐๐ถ๐ป๐ด ๐น๐ฒ๐๐ ๐ฒ๐ณ๐ณ๐ฒ๐ฐ๐๐ถ๐๐ฒ.
Thus, i decided to value Meta on its latest numbers in the annual report to validate if this drop in share price is justified.
As of December 2021, Facebook’s financials are as follows:
๐๐ฆ๐ท๐ฆ๐ฏ๐ถ๐ฆ๐ด – $117,929 ๐ฎ๐ช๐ญ๐ญ๐ช๐ฐ๐ฏ
๐๐๐๐ – $46,753 ๐ฎ๐ช๐ญ๐ญ๐ช๐ฐ๐ฏ ๐ข๐ต 40% ๐ฎ๐ข๐ณ๐จ๐ช๐ฏ
๐๐๐ – $14
๐๐ฐ๐ฐ๐ฌ ๐ท๐ข๐ญ๐ถ๐ฆ ๐ฐ๐ง ๐ฆ๐ฒ๐ถ๐ช๐ต๐บ = $124,879 ๐ฎ๐ช๐ญ๐ญ๐ช๐ฐ๐ฏ
๐๐ฐ๐ต๐ข ๐๐ฆ๐ฃ๐ต = $13,873
๐๐ข๐ด๐ฉ ๐ข๐ฏ๐ฅ ๐๐ฉ๐ฐ๐ณ๐ต ๐๐ฆ๐ณ๐ฎ ๐ช๐ฏ๐ท๐ฆ๐ด๐ต๐ฎ๐ฆ๐ฏ๐ต๐ด = $47,998 ๐ฎ๐ช๐ญ๐ญ๐ช๐ฐ๐ฏ
With the above numbers,
๐ ๐ฒ๐๐ฎ’๐ ๐ฎ๐ณ๐๐ฒ๐ฟ-๐๐ฎ๐
๐ฅ๐ข๐๐=๐ฏ๐ณ.๐ฐ๐ญ% ๐ฎ๐ป๐ฑ ๐ฅ๐ข๐ = ๐ฏ๐ญ.๐ญ%
๐๐๐ ๐๐๐๐ง ๐ด๐ฟ๐ผ๐๐๐ต ๐ฟ๐ฎ๐๐ฒ ๐ผ๐๐ฒ๐ฟ ๐น๐ฎ๐๐ ๐๐ฒ๐ฎ๐ฟ = ๐ฐ๐ฏ.๐ญ% ๐ฎ๐ป๐ฑ ๐ถ๐๐ ๐ฟ๐ฒ๐๐ฒ๐ป๐๐ฒ ๐ด๐ฟ๐ผ๐๐๐ต = ๐ฏ๐ณ.๐ญ๐ด%
If i assume –
1)Meta’s user growth continues to decline as more FB users move to Tiktok; I give a ๐ด๐ฟ๐ผ๐๐๐ต ๐ฟ๐ฎ๐๐ฒ ๐ผ๐ณ ๐ญ๐ฐ% ๐ถ๐ป ๐๐ต๐ฒ ๐ป๐ฒ๐ ๐ ๐ณ๐ถ๐๐ฒ ๐๐ฒ๐ฎ๐ฟ๐.
2)Meta will ๐น๐ผ๐๐ฒ ๐๐ผ๐บ๐ฒ ๐ผ๐ณ ๐ถ๐๐ ๐ป๐ฒ๐๐๐ผ๐ฟ๐ธ๐ถ๐ป๐ด ๐ฒ๐ณ๐ณ๐ฒ๐ฐ๐๐, reflecting its EBIT drop. More investments in Metaverse will further drop its EBIT. I have assumed Meta’s target EBIT after ten years is 35%
3)Meta incurred an R&D expense of $24,665 million, and i capitalised on the R&D expense at an amortisation period of 3 years.
4)Meta’s revenues come from 97% advertising and the remaining from software resulting in a levered beta of 1.46
5)Meta gets 47% of revenues from North America and 25% from Europe, and 28% from the rest of the world. I give an implied ERP of 4.63%
At the above inputs, i get the ๐ฐ๐ผ๐๐ ๐ผ๐ณ ๐ฐ๐ฎ๐ฝ๐ถ๐๐ฎ๐น ๐ณ๐ผ๐ฟ ๐ ๐ฒ๐๐ฎ ๐ฎ๐ ๐ด.๐ฏ๐ฑ%
At the next five-year revenue growth rate of 13.8%, WACC of 8.35%, and target EBIT% at the end of 10 years at 35%, I value ๐๐๐ญ๐ ๐๐ญ $๐๐๐.๐๐ ๐ฉ๐๐ซ ๐ฌ๐ก๐๐ซ๐ giving a price/value for growth at 51.32%.
If i do a relative valuation at EV/EBIT of 18.65 that advertising firms trade in the US, i price Meta at $337/share.
Thus, Meta is currently ๐๐ฟ๐ฎ๐ฑ๐ถ๐ป๐ด ๐ฎ๐ ๐ฎ ๐๐ถ๐ด๐ป๐ถ๐ณ๐ถ๐ฐ๐ฎ๐ป๐ ๐ฑ๐ถ๐๐ฐ๐ผ๐๐ป๐. Therefore, I believe it is an ideal time for ๐ ๐ฒ๐๐ฎ’๐ ๐บ๐ฎ๐ป๐ฎ๐ด๐ฒ๐บ๐ฒ๐ป๐ ๐๐ผ ๐ฏ๐๐ ๐ฏ๐ฎ๐ฐ๐ธ ๐๐ต๐ฎ๐ฟ๐ฒ๐.
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