Good morning investors!

Every Thursday we release our latest “Deep Dive” — a high level, easy to follow stock analysis designed to give our Edge+ members an EDGE when it comes to properly valuing a company. We do the heavy lifting so you can make more sound investing decisions.

Today’s deep dive target is Meta — the sixth largest company in the U.S. by market cap.

In today’s article we will look at the company’s performance, recent results, and dive deeper into its valuation to determine whether the stock is a BUY, SELL, or HOLD as we begin 2024, based on our opinion alone.

Before we share our research, what are your thoughts on Meta?

Alright, get off Instagram and let’s dive in.

Edge Score

We have been diligently working behind the scenes to develop several stock analysis systems for our members. Recently we unveiled our first tool — The Edge Scoring System.

The system takes tons of data and provides a score for 5 different metrics:

• Valuation

• Future Growth Projections

• Past Performance

• Financial Health

• Dividend

The system then takes these five metrics and provides an overall rating for the stock, which we refer to as the Edge Score.

Here is our Edge Score for Meta:

Below, we will further break down each category and share our methodology for scoring for this company.

Company Background

Meta Platforms, Inc., formerly known as Facebook, Inc., is an American multinational technology conglomerate headquartered in Menlo Park, California. The company was founded by Mark Elliot Zuckerberg, Dustin Moskovitz, Chris R. Hughes, Andrew McCollum, and Eduardo P. Saverin on February 4, 2004.

Meta owns Facebook, Instagram, Threads, and WhatsApp, with 97.8% of its revenue derived from advertising. Rebranded in 2021 to emphasize its focus on the metaverse, Meta aims to create an integrated environment connecting its products and services.

As one of the Big Five American tech companies, Meta ranked #31 on the Forbes Global 2000 in 2023. In 2022, it was the third-largest spender on R&D globally, investing $35.3 billion.

Mark Zuckerberg is the current Chairman and CEO of Meta.

Source of Revenue

Meta Platforms engages in the development of social media applications. It builds technology that helps people connect and share, find communities, and grow businesses. It operates through the following segments:

Family of Apps (FoA)

• Facebook

• Instagram

• Messenger

• WhatsApp

• Other services

Reality Labs (RL)

• Augmented, mixed and virtual reality related consumer hardware

• Software

• Content

Past Performance

In this section we will go over the company’s recent earnings results and dive into their financial performance over the last few years.

Stock Price History

Meta shares have risen 672% over the last 10 years.

Recent Earnings Report

In its recent quarterly report, Meta reported a strong Q3 as earnings and revenue surpassed expectations.

The company posted total revenue of $40.59 billion, up 19% year-over-year. Net income surged 35% to $15.7 billion from $11.6 billion a year ago, and earnings per share of $6.03, beating the expected $5.25.

Key highlights include advertising revenue reaching $38.9 billion, a 19% increase YoY, and Reality Labs revenue growing by 29% YoY to $270 million, despite significant operating losses in the unit. Daily active users grew 5% YoY to 3.29 billion, although slightly below analyst forecasts.

Meta's investments in AI continue to bolster its ad capabilities and infrastructure development, with over one million advertisers utilizing its generative AI ad tools.

Guidance for Q4 projects revenue between $45 billion and $48 billion, surpassing analyst expectations. However, the company also flagged a substantial rise in infrastructure spending for 2025, driven by AI and data center expansions, signaling future cost pressures despite strong financial performance in the present.

META shares are -3.6% since reporting earnings on October 30th.

Income Statement

Meta has demonstrated strong financial performance with its income statement showing robust growth over the past decade.

Revenue reached $156.2 billion, growing 23% YoY and an impressive 1,295% over 10 years. Operating income also surged, hitting $63.8 billion with a 46% YoY increase, reflecting efficient cost management despite rising R&D expenses. Net income growth of 87% YoY highlights Meta's strong profitability, aided by its high-margin advertising business, which dominates its revenue stream.

However, operating expenses, particularly in R&D, remain a concern as they climbed to $36.5 billion in 2023, emphasizing Meta's aggressive investment in the metaverse and AI. While this strategy is critical for long-term growth, it pressures short-term profitability. Gross profit increased 17% YoY to $127 billion, but cost of revenue has been steadily rising.

Meta's ability to balance its innovation focus with sustained profitability will be key to maintaining investor confidence.

Thank you for joining us for this Deep Dive of Meta.

If you enjoyed this deep dive, be sure to LEAVE A COMMENT. We look forward to hearing your thoughts on Meta and our analysis. And let us know what stocks you want to see in the future.

Thank you, and until next time investors!

Mark & Chris

The Investor’s Edge

Disclosure

This deep dive is for educational and informational purposes only. The authors are NOT financial advisors, thus cannot recommend for you to personally to buy or sell any positions. Positions taken on a particular stock are opinions of the authors and only the authors. It is very important that you do your own research and make investments based on your own personal circumstances, preferences, goals and risk tolerance.