Meta Platforms: Strong Moat and Reasonable Valuation

Meta Platforms (FB), formerly known as Facebook, is an American online social media giant. The company was founded by Mark Zuckerberg in 2004 along with his fellow Harvard students and boasts the most visited social media platform in the world.

I am bullish on Meta as its powerful moat, innovative strength, and reasonable valuation make it a compelling buy. (See Analysts’ Top Stocks on TipRanks)


Despite setbacks like the Cambridge Analytica scandals, Facebook recently recorded 1.93 billion daily active users on its platform. The social media service offers a rich and engaging experience to internet users. It has launched many features, which allows it to integrate closely with other websites and apps, something that other social media services struggle to offer.

Meta also has one of the best systems for user data collection. Aside from Google, no other business has such extensive data collected on users’ likes, dislikes, interests, and online behavior. With so much data, Meta knows precisely what to offer its users and how to improve their experiences on its platforms.

Recent Results

Meta Platforms generated revenue of $29.01 billion in its third quarter of 2021, falling short of analysts’ expectations of $29.45 billion. The company, however, was able to beat earnings expectations, which were $3.22 per share in comparison with analysts’ expectations of $3.17.

The company also saw 12% growth (3.58 billion users) in its monthly active users across its family of apps compared to expectations of 3.51 billion users.

FB reported capital expenditures of $4.54 billion in the third quarter of 2021, including the principal payment on finance leases. Cash, cash equivalents, and marketable securities were $58.08 billion in the quarter ended September 30, 2021. The company employs 68,177 people, which shows an increase of 20% from the previous year’s third quarter.

FB’s earnings report came in the wake of SNAP’s announcement that Apple’s new App Tracking Transparency feature posed an obstacle to advertisers’ ability to track their ads’ campaign performance.

Meta, however, reported that its plan to build its app as an e-commerce platform would help it offset the impact of Apple’s privacy policy changes in the long run. The company also said it will now be turning its sight to capture a higher percentage of the younger demographic.

Still, FB had to weather several external pressures. These include things such as the lawsuit by the Federal Trade Commission and its whistleblower documents that revealed the company did not take much action against the impacts its app has on young girls’ mental health. It also includes the dissemination of hate speech, conspiracy theories, and human trafficking on its platform.

The company had to let go of its $1 trillion valuation tag after losing $150 billion in market value in just two months. It has now recovered most of those losses, however, its stock is now one of the cheapest U.S. mega-tech companies.

Valuation Metrics

FB looks attractively valued right now. Its enterprise value-to-forward EBITDA ratio is 13.8x compared to its five-year average of 13.9x, and its price-to-forward normalized earnings ratio is 24.8x compared to its five-year average of 25.2x.

Wall Street’s Take

Turning to Wall Street, Meta Platforms earns a Strong Buy consensus rating on 29 Buys, six Holds, and one Sell in the past three months. The average Meta Platforms price target of $405.59 implies 15.5% upside potential.

Summary and Conclusion

Meta Platforms possesses one of the strongest moats globally as it has achieved unchallenged status as the top social media company in the world. Between Instagram, Facebook, and WhatsApp, a substantial percentage of the world’s population is connected through its platforms. As a result, it possesses a treasure trove of consumer data and can rake in an abundance of advertising revenue.

Even better, the stock itself looks attractive here as its valuation multiples are slightly below historical averages, and Wall Street is overwhelmingly bullish on the company here with a consensus price target that indicates meaningful upside potential over the next year.

Disclosure: At the time of publication, Samuel Smith did not have a position in any of the securities mentioned in this article.

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