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Since October 2024, Meta has been in a holding pattern, posting a small loss of 2.8% while floating around $566.59.
Does this present a buying opportunity for META? Or is its underperformance reflective of its story and business quality? Find out in our full research report, it’s free.
Why Are We Positive On META?
Famously founded by Mark Zuckerberg in his Harvard dorm, Meta Platforms (NASDAQ:META) operates a collection of the largest social networks in the world - Facebook, Instagram, WhatsApp, and Messenger, along with its metaverse focused Reality Labs.
1. Eye-Popping Growth in Customer Spending
Average revenue per user (ARPU) is a critical metric to track because it measures how much the company earns from the ads shown to its users. ARPU can also be a proxy for how valuable advertisers find Meta’s audience and its ad-targeting capabilities.
Meta’s ARPU growth has been exceptional over the last two years, averaging 11.7%. Its ability to increase monetization while growing its daily active people demonstrates its platform’s value, as its users are spending significantly more than last year.
2. EBITDA Margin Reveals a Well-Run Organization
Investors frequently analyze operating income to understand a business’s core profitability. Similar to operating income, EBITDA is a common profitability metric for consumer internet companies because it removes various one-time or non-cash expenses, offering a more normalized view of profit potential.
Meta has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer internet business, boasting an average EBITDA margin of 59.7%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Meta has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the consumer internet sector, averaging an eye-popping 31.8% over the last two years.
Final Judgment
These are just a few reasons why we think Meta is a high-quality business, but at $566.59 per share (or 13.2× forward EV-to-EBITDA), is now the time to initiate a position? See for yourself in our full research report, it’s free.