1. Meta Platforms, Inc. (NASDAQ:FB)
Share Price as of June 6: $193.39
Number of Hedge Fund Holders: 200
Meta Platforms, Inc. (NASDAQ:FB) is a Menlo Park, California-based diversified technology conglomerate and the parent organization of notable social media and instant messaging platforms like Facebook, Instagram, and WhatsApp. Meta Platforms, Inc. (NASDAQ:FB) is now making a strategic shift towards augmented reality through Metaverse and Oculus VR headsets.
Meta Platforms, Inc. (NASDAQ:FB) is undergoing a shakeup in the higher echelon of the organization. Within the previous week, the company announced the departure of COO Sheryl Sandberg and VP of AI Jerome Pesenti. The stock is currently trading at a multi-year low and has lost nearly 50% of its value since its peak in August 2021. The major reason for the decline in stock price is growth-related concerns and negative news flow. Meta Platforms, Inc. (NASDAQ:FB) is trading at a forward adjusted P/E multiple of 16.28x, reflecting a discount of 35.3% from its five-year average adjusted P/E multiple of 25.18x. For a dominant market leader, this is a cheap multiple.
Giverny Capital shared its insights on Meta Platforms, Inc. (NASDAQ:FB) in its Q1 2022 investor letter. Here’s what it said:
“If there is any good news, I don’t believe this group suffered material impairments to their long-term earnings trajectory. Rather, relatively small earnings misses or reductions to short-term guidance led to large stock declines. I added to several of these positions during the quarter.
However, our holding Meta Platforms, the detested social media business formerly known as Facebook, deserves some attention. It suffered an earnings miss in the fourth quarter of 2021 and provided sobering future guidance. While this qualifies as disappointing news, I think the market reaction was more of a primal scream than a considered response.
As a person who manages other people’s money for a living, I can tell you with confidence that clients don’t like Meta. A few of you won’t own it, restricting me from buying it for you. Others defer to me,
grudgingly. There is no other security in our portfolio like this. When a company is so widely disliked, the main reason to hold it is because it is “working,” to use the horrible Wall Street parlance. In other words, your manager owns it because it keeps going up. Once it stops going up, professional money managers happily accept the chance to sell it. No more cranky calls from clients questioning their ethical compass.The rub, however, is that despite the bad earnings news the economics of Meta’s social media businesses remain exceptionally good. In 2021, for every dollar of revenue generated Meta spent 63 cents on expenses and reported 37 cents of pretax profit. That was considered disappointing, even though very few businesses generate 37% profit margins. On top of that, fully one-third of expenses, or 21 cents on the dollar of revenue, is spent on research & development, which is investment in future growth. In Meta’s case, this amounts to about $25 billion a year invested in various new projects, the most important of which is the metaverse. R&D is not completely discretionary as companies have to invest in innovation or stagnate. But management certainly has flexibility as to the pace of spending…” (Click here to see the full text)
Meta Platforms, Inc. (NASDAQ:FB) was held by 200 hedge funds as of Q1 2022.
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