Everywhere I go I see people absolutely glued to their phone. I am very observant in public and the amount of people I see aimlessly scrolling on Instagram while doing ordinary tasks is astounding. Crossing the street, boarding a flight, buying groceries, it doesn’t matter, people are scrolling through social media. At this point it has to be an addiction or a form of digital Valium to ease anxiety, for some people. The amount of eyeballs on a Meta owned platform (Facebook, Instagram, WhatsApp, etc) at any giving moment is countless.
Which ultimately leaves me with the question: Should I Invest Meta Platforms, Inc.?
Is Meta Human?
As stated in my blog about Uber, I love companies that provide tangible value to the world. Companies that make it clear how they improve the overall quality of the human experience. Does the company satisfy a basic human need? Meta Platforms, and their subsidiary brands, Facebook and Instagram, unequivocally check these boxes. Facebook and Instagram allow human beings to connect with one another. Human connection is an innate and fundamental component of the human experience. Better said, people like to communicate and stay up to date with their friends, family, favorite artists, clients, etc. Further, Facebook and Instagram effectively solve the human problem of:
Having the ability to communicate with other people, see other people, witness unknown and unique experiences, build community, and become informed, in one place, without having to travel.
Think about that.
If you want to know what a trillion dollar idea looks like, this is it.
Who is currently invested in Meta?
I like to see which large financial institutions invest in Meta. (checks Yahoo! Finance) Of course, Vanguard, Blackrock, State Street, and JP Morgan, are at the top of the list. This tells me that much of America's wealth is invested in the company.
Company Overview:
Meta Platforms has two business segments:
1. Family of Apps
2. Reality Labs
Their Family of Apps products include: Facebook, Instagram, Messenger, Threads, and WhatsApp.
Their Reality Labs segment is related to the development of the Metaverse and their ancillary virtual reality products, including the Meta Quest devices.
Financial Analysis:
Meta Platforms generated $134.9 billion in revenue in 2023, which is a 16% increase from 2022. Nearly 99% of all revenue is generated from advertising on their Family of Apps platforms. Their 2023 operating expenses totaled $88.15 billion, resulting in a positive 35% profit margin. Their profit margin in 2022 was 25%. This is encouraging.
Their Reality Labs investment is currently operating at a complete loss. In 2023, Meta invested more than $18 billion in the metaverse, while generating only $1.9 billion. Take a look at the company has to say about their Reality Labs business:
"we expect our RL segment to continue to operate at a loss for the foreseeable future, and our ability to support our metaverse efforts is dependent on generating sufficient profits from other areas of our business... We are investing now because we believe this is the next chapter of the internet and will unlock monetization opportunities for businesses, developers, and creators, including around advertising, hardware, and digital goods."
So, neither the company, nor the market, expect the metaverse to make any money any time soon. So, how long will it take for the metaverse vision to come to fruition? If the metaverse never pans out I am not sure that is a bad thing, as Meta can cut costs by more than $18 billion?!
Since 2021, Meta's revenue has grown 14.4% or 4.8% per year. I am comfortable with the company's ability to make money.
Balance Sheet:
As of year end 2023, Meta reported $41.86 billion dollars of cash on their balance sheet, which is a 185% increase from 2022. Further, their total assets in 2023 increased $43.9 billion or 23.6% year over year (YOY). Meta's liabilities in 2023 increased $16.4. billion YOY or 27.4%.
The net stockholder equity of Meta from a balance sheet perspective increased 21.8% in 2023. It is safe to conclude that Meta Platforms at 20 years old (a relatively young company) appropriately manages capital.
Dividend Announcement:
February 1, 2024, Meta announced their first cash dividend of $0.50 per share of common stock (paid quarterly).
This is a game changer. The value of Meta's stock now stretches beyond simple price appreciation, but it is now a cash flowing asset.
Conclusion:
Meta Platforms is absolutely a BUY.