Great post, both on the substance and the form. You were spot on late last year about Meta. The stock has surged 150% since then. I also like how you use graphs to illustrate your point convincingly. The capex, headcount, and user count diagrams perfectly tell your story -- costs are under control and users are not fleeing FB/IG. Thank you Devin!
Thanks for the kind words, Tian. My one embarrassment is my total inability to come up with a better way to approach modeling out the potential outcomes of RL other than $0 residual value from scrapping and growing associated losses. I have quite the imagination, but have always felt squeamish toward the idea of laying out narratives I can't tie hard numbers to.
Great dive into Meta's real cogs under the hood. It seems Meta is the company that many like to hate on, so much so that their share performance has an additional 'emotional margin'.
As always, and like my articles, not investment advice. I think you can draw out a scenario with msd-hsd topline growth and improving margins leading to better FCF conversion, allowing the company to maintain its current pace of buybacks, implying an intrinsic value of ~$320-375/share. This is assuming continually growing losses in RL and ignoring a shift in capital structure by taking on more debt, which would quicken the pace of buybacks and juice equity returns further. You can attach a sensitivity analysis to explore the outcomes of RL inflecting or being cut, as well as changes to the capital structure, and adjusted the intrinsic value on an expected basis to reflect potential upside. As I mentioned in this piece, nothing is certain, and network effects can work in reverse. Any sizable misstep on behalf of Meta could throw a serious wrench into equity returns. Perhaps when I next revisit Meta I will attach such illustrations.
Great post, both on the substance and the form. You were spot on late last year about Meta. The stock has surged 150% since then. I also like how you use graphs to illustrate your point convincingly. The capex, headcount, and user count diagrams perfectly tell your story -- costs are under control and users are not fleeing FB/IG. Thank you Devin!
Thanks for the kind words, Tian. My one embarrassment is my total inability to come up with a better way to approach modeling out the potential outcomes of RL other than $0 residual value from scrapping and growing associated losses. I have quite the imagination, but have always felt squeamish toward the idea of laying out narratives I can't tie hard numbers to.
Excellent writing and the charts are telling!
Thanks for reading, Nick. Truly appreciated!
Great dive into Meta's real cogs under the hood. It seems Meta is the company that many like to hate on, so much so that their share performance has an additional 'emotional margin'.
Thank you for reading and taking the time to comment. 100% on the emotional margin.
Good article, but what would be your approx valuation of Meta now?
As always, and like my articles, not investment advice. I think you can draw out a scenario with msd-hsd topline growth and improving margins leading to better FCF conversion, allowing the company to maintain its current pace of buybacks, implying an intrinsic value of ~$320-375/share. This is assuming continually growing losses in RL and ignoring a shift in capital structure by taking on more debt, which would quicken the pace of buybacks and juice equity returns further. You can attach a sensitivity analysis to explore the outcomes of RL inflecting or being cut, as well as changes to the capital structure, and adjusted the intrinsic value on an expected basis to reflect potential upside. As I mentioned in this piece, nothing is certain, and network effects can work in reverse. Any sizable misstep on behalf of Meta could throw a serious wrench into equity returns. Perhaps when I next revisit Meta I will attach such illustrations.
Thanks for reading!