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Fundamental View
AS OF 07 Feb 2024We continue to be encouraged by the underlying momentum in the Family of Apps business, particularly the strong revenue guidance for 1Q24 which implies an acceleration to 29% YoY growth in constant currency at the high-end. Credit metrics are rock solid with 0.3x gross leverage and $47 bn net cash.
We continue to expect Meta to be a regular/annual issuer to fund its shareholder returns and big investments in AI and metaverse, although our best guess is this will be in 2H24 given its increased cash balance and improved FCF generation. Longer term, we expect Meta to adhere to its previously communicated financial policy of maintaining a positive or neutral cash balance.
Business Description
AS OF 07 Feb 2024- Meta Platforms is the largest social networking company in the world. Meta generates substantially all of its revenue from advertising which includes Facebook, Instagram, Messenger, and third-party affiliated websites or mobile applications.
- In 4Q23, Family of Apps was 97% of revenue (96.5% from advertising and 0.8% from other) and Reality Labs was 3% of revenue. Reality Labs generated $16.1 bn in operating losses during LTM 4Q23 as the company is investing heavily in the metaverse.
- Total MAUs and DAUs are 3,065 mn and 2,110 mn respectively at 4Q23. While US & Canada have the lowest number of users, they generate higher revenue than other regions given significantly higher ARPU. Revenue is 46% from US & Canada, 24% from Europe, 19% from Asia Pacific, and 11% from Rest of World.
- Meta is headquartered in Menlo Park, California. Employee headcount was 67.3k at 4Q23.
Risk & Catalysts
AS OF 07 Feb 2024In December 2020, the FTC filed a lawsuit against Meta targeting its acquisitions of Instagram and Whatsapp. If Meta is forced to unwind prior acquisitions, this would be a credit negative given reduced scale and diversification.
Meta’s Facebook and Instagram are exposed to rising competition from TikTok and other social media platforms. Meta has cloned TikTok’s short-from video with Reels. The US has threatened to ban TikTok unless its Chinese owners divest its stake.
Meta’s business model relies almost entirely on user-generated content. As such, there are risks related to customer privacy (e.g., Cambridge Analytica data scandal in 2018) and regulatory changes (e.g., Section 230 protections).
In October 2022, activist Altimeter Capital wrote a letter to Zuck and Board although it was on the friendly-side of activism and some suggestions have already been implemented.
Key Metrics
AS OF 07 Feb 2024$ mn | 2019 | 2020 | 2021 | 2022 | LTM 4Q23 |
---|---|---|---|---|---|
Revenue YoY % | 26.6% | 21.6% | 37.2% | (1.1%) | 15.7% |
EBITDA | 34,562 | 46,069 | 63,882 | 49,622 | 71,955 |
EBITDA Margin | 48.9% | 53.6% | 54.2% | 42.6% | 53.3% |
CapEx % of Sales | 22.1% | 18.3% | 16.3% | 27.5% | 20.8% |
Sh. Ret. % of CFO-CapEx | 20% | 27% | 116% | 152% | 46% |
Net Debt | (54,855) | (61,954) | (47,998) | (30,815) | (47,018) |
Gross Leverage | 0.0x | 0.0x | 0.0x | 0.2x | 0.3x |
EV / EBITDA | 15.5x | 15.8x | 14.0x | 5.8x | 12.3x |
CreditSights View
AS OF 05 Feb 2024We are encouraged by the underlying momentum in the business, particularly the strong revenue guidance for 1Q24 which implies a 7 pt acceleration to 29% YoY growth in cc at the high-end. Credit metrics are rock solid with 0.3x gross leverage and $47 bn net cash. We expect Meta to be a regular/annual issuer although our best guess is this will be in 2H24 given its increased cash balance and improved FCF generation. Longer term, we expect Meta to adhere to its previously communicated financial policy of maintaining a positive or neutral cash balance. We have a preference for the front/belly of the curve which is supported by the strong balance sheet and durability of Meta’s cash generative Family of Apps business, whereas there are long-term concerns regarding competition and regulation.
Recommendation Reviewed: February 05, 2024
Recommendation Changed: August 04, 2022