Facebook announced strong 3rd quarter earnings this week while continuing their transition toward “Metaverse”, the company’s new name.
During Facebook’s 3rd quarter earnings announcement, two quotes from Facebook leaders stand out:
Mark Zuckerberg, Facebook’s CEO:
“I’m proud of our record navigating the complex tradeoffs involved in operating services at global scale, and I’m proud of the research and transparency we bring to our work. Our programs are industry leading. We have made massive investments in safety and security with more than 40,000 people and we are on track to spend more than $5 billion on safety and security in 2021. I believe that’s more than any other tech company, even adjusted for scale.”
Sheryl Sandberg, Facebook’s Chief Operating Officer:
“We believe that we drive hundreds of billions of dollars of offsite merchandise GMV through ads.“
Over the last 5-7 years, Facebook has battled against legit yet exaggerated criticism. The questions revolve around platform safety, security, and whether the platform is driven by good intentions.
I believe that the Facebook team is doing all it can to secure and drive human connections for over 3B people in almost every country and language. This is no easy task as Facebook is the first of its kind. I continue to believe that Facebook has good intentions and is best in class studying the implications of social media, however, traditional media is using this information against them. This makes sense as an audience of 3 billion people is a threat to traditional media’s core business model.
If at any point I believe that management is not striving to be better, I will rethink the investment case. For now, I applaud their work, their execution, and support their business that supports hundreds of millions of small businesses, is 100% operated on renewable energy, provides communication tools for global companies and families, and is the lifeline for so many physical businesses that used their services during lockdowns.
Longer Term Company View
Facebook’s 3rd quarter earnings included robust numbers with continued growth in users and cash flow generation. Our biggest takeaway is that more users are using it daily than in prior quarters. In addition, they announced a $50B share buyback supported by 36% operating margins. The margins for its core business are likely north of 45%, which we will learn ore about this coming quarter as they split their Facebook Reality Labs segment for their core communications segment.
The business is well positioned for current and future generations and is valued around 12x EBITDA and 18x cash flow with limited debt. I think this is a stock to own, not trade.
Twitter: @_SeanDavid
The author or his firm may have positions in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
