Meta Platforms Inc
Weekly Valuation – Valutico | July 25, 2023
Link to the valuation
Meta Platforms Inc., once known as Facebook Inc., is a colossal entity in the realm of global tech. Known for its wide array of services including renowned platforms like Facebook, Instagram, and WhatsApp, Meta has etched its presence into the fabric of the digital world. Through a strategy of “imitate, acquire, outperform,” Meta has steadily amplified its portfolio and extended its reach to over three billion users across its assorted applications. In its latest move, Meta introduced Threads, marking its entry into the territory predominantly occupied by Twitter.
Threads, Meta’s latest addition to the social media landscape, has experienced a rapid user growth since its launch, gaining over 100 million users within just five days. This growth trajectory makes it the fastest-growing social app in history. Threads’ close integration with Instagram, is a defining characteristic. Users need an Instagram account to join Threads, and eradicating Threads means eliminating their Instagram account too. This inherent interconnection has given the new platform a head start, providing a massive user base at the get-go.It adopts several features from Twitter, creating a competitive dynamic between the two platforms. The success of Threads will hinge on its ability to one-up Twitter.
Impact on Meta’s Financials
Despite potential legal issues with Twitter, the new social media platform shows promise for significantly boosting the company’s 2024 revenue. CEO Mark Zuckerberg anticipates that Threads could add 1-2 points to the revenue growth. With Threads expected to hit 250 million by 2024, it’s projected to yield a $2-3 billion revenue increase. Considering Meta’s proven monetization success, Wall Street may value Threads’ user revenue comparably or higher than Twitter’s $23 per user.
Stock Market Implications
Meta Platforms’ stock has been recovering steadily, now just 20% below its September 2021 peak. With Q2 2023 revenue forecasted at $31.0B, marking a ~7.6% YoY growth, and an EPS of USD 2.89 indicating a ~17% YoY growth, the company’s prospects seem promising. The share price, having grown by 159% in 2023, and a 250% rise from its 52-week low, suggests the market’s faith in a business turnaround. Yet, it would require a strong Q2 2023 earnings report, potentially boosted by the new high-margin revenue source, Meta Verified, to yield further rewards for shareholders.
We analyzed Meta Platforms Inc by using the Discounted Cash Flow method, specifically our simplified DCF WACC approach, as well as a Trading Comparables analysis. The Discounted Cash Flow analysis produced a valuation range of USD 370 billion to USD 493 billion using a WACC of 12.9%.
The Trading Comparables analysis resulted in a valuation range of USD 503 billion to USD 812 billion by applying the observed trading multiples EV/Sales, EV/EBITDA, EV/EBIT and P/E. For our Trading Comparables we selected similar peers such as Alphabet Inc., Snap Inc., Microsoft Corporation.
Combining our DCF WACC and Trading Comparables analysis results in a valuation range of USD 506 billion to USD 769 billion. In comparison to Meta’s market capitalization of USD 730 billion we suggest that the company is fairly valued.
Link to the valuation
This article is for informational purposes only and does not constitute investment advice. None of the information contained herein constitutes a solicitation, offer or recommendation to sell or buy any financial instrument.