Meta Platforms’ Stock Is Trading Close To Its Fair Value

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META: Meta Platforms logo
META
Meta Platforms

Meta Platforms’ stock (NASDAQ: META) has gained 98% YTD, while the S&P500 is up only 8% over the same period. The stock price touched a 52-week low in the last quarter of 2022. However, it has seen a sharp recovery since then. It was because of several reasons, better than expected results in both Q4 2022 and Q1 2023, consistent growth in the user base, a strong business model, focus on optimizing costs, and a share repurchase program worth $40 billion.

The stock is currently trading around $239 per share, which is 4% above its fair value of $228 – Trefis’ estimate for Meta Platforms’ valuation. Its total revenues increased 3% y-o-y to $28.65 billion in the first quarter of 2023, beating the street estimates. Further, daily active users (DAUs) improved by 4% y-o-y to 2.04 billion for March 2023. Along with this, the firm repurchased $9.2 billion of common stock in Q1, as part of its share repurchase program. That said, the cost and expenses rose by 10% y-o-y, reducing the net income by 24% y-o-y to $5.7 billion. Notably, the expense figure includes charges related to restructuring efforts of $1.14 billion.

The top line marginally decreased to $116.6 billion in FY2022. The decrease was due to a tough macroeconomic condition, which negatively impacted advertising revenues. However, the DAUs still improved by 4% y-o-y. On the cost front, the net income was down 41% y-o-y to $23.2 billion. It was due to an unfavorable increase in research & development costs. 

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Moving forward, we expect the growth rate of advertising revenues to recover over the subsequent quarters. Notably, META expects the Q2 revenues to remain between $29.5-32 billion. Overall, we estimate Meta Platforms’ revenues to touch $122.4 billion in FY2023. Additionally, the adjusted net income is likely to remain around $25.73 billion in the year. This coupled with an annual EPS of $10.02 and a P/E multiple of just below 23x will lead to a valuation of $228.

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 Returns Apr 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 META Return 13% 98% 107%
 S&P 500 Return 1% 8% 85%
 Trefis Multi-Strategy Portfolio -1% 7% 237%

[1] Month-to-date and year-to-date as of 4/28/2023
[2] Cumulative total returns since the end of 2016

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