META Stock is Crashing - Here's Everything You Need to Know

Meta is down 14% in after-hours trading after the company beat analyst expectations on both revenue and earnings as promised in this video. Let's discuss earnings targets, what's happening

here

and whether the

stock

looks like a buy now that it is. By posting this video, we're going to cover

everything

you

need

to

know

about earnings and target price today, so with that being said, let's jump right into it, so as always, I put together a little slideshow from Daniel Prong that will cover all the Highlights from the earnings report, so right away we can see that revenue came in at $36.5 billion, which is up 27% year over year, an incredible growth rate for overall target revenue. and exceeded their own expectations.

Additionally, the company still grew its revenue by over 20%, which I think is just incredible. Income from operations was also 13.8 billion, which is an increase of 91% year over year, net income reached 12.4 billion, which is an increase. 117% year over year and EPS was $471, which is a 100% increase year over year, so in terms of revenue and profitability, the

meta

is absolutely killing it and the business is growing across the board. fronts w

here

we can. Also see that the family's daily active people were 3.24 billion, which is an increase of 7% year over year, so more and more people around the world continue to use the

meta

family of apps, which Which is good, ad impressions were also up 20% year over year. -Throughout the year, so more people see more ads, which is good, the average price per ad increased 6% year over year and Meta bought back 14.6 billion shares in the first quarter and also paid 1.3 billion dollars in dividends.

Therefore, they are still focused on buying back shares rather than paying dividends. They simply pay out a very small amount of free cash flow as a dividend, but most of the free cash flow goes to buying back shares that the company still has. a very healthy balance sheet with $58 billion dollars in cash as well and they reduced their workforce by 10% year over year so honestly

everything

at meta seems to be going well and I think Google could use a little effort. A meta Playbook note right here on reducing the overall headcount because Google is still a little bloated, which we'll talk about in tomorrow's video when I do my Google earnings video.

Now, moving on to the goal balance, very quickly, we can see. that $58 billion of cash and cash equivalents and marketable securities, however, I want to point out that cash was down $9.5 billion in the first quarter, so the company is spending more money than it took in at least in the first quarter. However, if we take a look at the total current liabilities, they are sitting at 28.1 billion, so when you look at Meta's cash position right here, at 32 billion, you can see that it is higher than the current liabilities. 28 billion, so the company has a very solid balance sheet.

They have more cash than current liabilities, plus total liabilities amount to $73 billion, so their cash and marketable securities position could almost eliminate the company's entire debt position, so overall, a very , very healthy, now we move on to the cash flow statement, which is my favorite. In the financial statement we can see that operating cash flow was 19.2 billion compared to 14 billion in the first quarter of last year. This is 37% year-over-year cash flow growth, so it's a very healthy increase in the company's overall cash generation. Additionally, capital expenditures, which are purchases of property, plant and equipment here, were just $6.4 billion in the quarter versus $6.8 billion in the first quarter of last year, so the Capital spending actually also decreased slightly year over year and this ultimately means that target free cash flow grew tremendously year over year due to that significant increase in operating cash flow and lower capital expenditures.

This ultimately means that Meta had around 122.8 billion in free cash flow for the quarter; However, here again we can see that they bought back. $15 billion worth of

stock

in the quarter, which is more than the company's free cash flow for the quarter, so the cash position has declined quarter over quarter because they spent more than their free cash flow on buybacks shares and pay dividends now. I don't think this is really a red flag because meta is a very profitable business with a very large cash position, so spending a little more on BuyBacks is totally justified.

Now we move on to target ad revenue by geography and you can see that in the most recent quarter here they had $35.6 billion in ad revenue versus about 28.1 billion last year, so there was an increase massive in overall advertising revenue. Now, what's also interesting is that each geography saw its ad revenue grow quite significantly year over year, so across all geographies in the world, the meta is producing more ad revenue, which is quite optimistic. to the company. Now, the next slide here is the company's segment results so we can see the App Family revenue and the Reality Labs revenue, and I highlighted the year-over-year results, so the App Family generated $36 billion in revenue versus 28.3 billion last year, so pretty massive growth of almost 30% year over year.

Reality Labs revenue last year was also 339 million versus 440 million this quarter, so Reality Labs revenue also grew about 30%, but overall it's still a very small portion of the business and when we take a look look at the percentage of the company's revenue is quite insignificant: it is just over 1%. Additionally, Reality Lab's operating loss was almost $4 billion in the quarter, which is a little less than last year's loss, but overall the reality lab segment is still losing about $4 billion in the quarter, which is a massive cash burn and we'll have to see if this ever becomes a profitable part of the overall meta business because over the last few years it's been losing a lot of money, but moving on to meta expenses As a percentage of revenue, we can see that expenses increased slightly quarter over quarter, but overall expenses as a percentage of revenue, have still dropped tremendously over the last few years and are holding steady where they are currently.

So Meta went through its year of efficiency in 2023 and now it looks like the company is maintaining that. efficiency at least over the last few quarters, so this appears to be as efficient as the meta business will continue to move forward. Moving on to the average household income per person, we can see that it is at $11.20, which is an increase of approximately 20%. year over year from $947 last year, so for every person in the meta app family, every daily active user is making more money year over year overall, that's a very good thing too, so let's move on to the flow free cash here. we can see that meta generated around 12.5 billion in free cash flow in the most recent quarter and in the last 12 months they generated around 48.6 billion in free cash flow now and we can see that the flow figures of free cash from the last four quarters are all in that $11 to $14 billion range, which also suggests that this is about as efficient as the meta will be and its margin expansion probably won't be too significant going forward, at least in my own opinion, so overall that means we shouldn't expect massive free cash flow growth over the next two years because their year of efficiency worked and it looks like it's almost over, honestly this was a quarter pretty good to target again 27% Revenue Growth 91% Operating Income Growth Over 100% Net Income Growth Operating Cash Flow Up 30% Year Over Year Daily Active Users Up Average Revenue Per Daily Active User Up , so basically all the meta metrics are growing quite significantly and again exceeded their own expectations. and analyst expectations for revenue and earnings, then the question is why the stock fell 14% in after-hours trading and in my opinion it is because of the outlook that the CFO gave, so here it is the outlook we expect for total revenue for the second quarter of 2024. to be in the range of 36.5 to 39 billion, the middle range there is around $38 billion in revenue for the next quarter, which represents about a 177% year-over-year revenue growth compared to Q2 2023, what this means is that target revenue growth is starting to slow down, remember the last few quarters have had revenue growth of over 20% and they are now projecting 17% revenue growth for the next quarter, so revenue growth is again starting to slow, however it is worth noting that this is still very strong revenue growth of 177% year-over-year, which is just shy of 20% year-over-year revenue growth, so it's still a good thing to see in my opinion.

But continuing with the CFO, he says we expect all the way to 2024. Total expenses will be in the range of 96 to 99 billion updated from our previous outlook of 94 to 99 billion due to higher infrastructure and legal costs. So Meta increased the low end of their spending by $2 billion for this year and they say so. It's due to infrastructure and legal costs, so it looks like Meta is having to spend more on legal fees and costs which they also say we anticipate all the way through 2024. Capital expenditures will be in the range of $35-4k. million increase from our previous range of between $30 and $37 billion as we continue to accelerate our infrastructure.

Investments to support artificial intelligence. Roadmap: This is a pretty large increase to the company's overall capital expenditures. Capital expenditures on the low end are an increase of $5 billion and on the high end are an increase of $3 billion. and I think this is also why the stock is down because Meta is increasing its capex or its overall capex for the year quite significantly. This also suggests that over the next three quarters target capex will increase quite significantly from what they posted. in the first quarter, which was 6.4 billion, so we can probably expect around $10 billion of capital spending per quarter over the next three quarters, which will reduce the company's overall profitability and its free cash flow , so what this actually suggests is that target earnings margins are at their peak right now and over the next few quarters free cash flow margin and profit margins may decline, which could reduce overall earnings per share and free cash flow per share over the next few quarters, but moving forward with this as well. says that while we do not provide guidance for years beyond 20124, we expect capital expenditures to continue to increase next year as we invest aggressively to support our ambitious AI product research and development efforts, so that in addition to increasing target their capital spending targets for this year, They are saying that next year will be even higher, so they will spend even more than 35 to 40 billion dollars in capital expenditures in the year 2025.

They are not giving exact figures right now, but they're just letting investors

know

that, in reality, this is going to continue to increase and increase, which overall would suggest that perhaps profit margins will continue to decline over the next couple of years. So the CFO also says that, in addition, we continue to monitor an active regulatory landscape that includes increasing legal and regulatory hurdles in the EU and the US that could significantly impact our business and financial results, so it appears that the Regulatory landscape is becoming more complex for the meta and it appears that it is actually starting to cost the company more and more money.

They are trying to navigate this, but are warning investors that the regulatory landscape could significantly impact the business in the future. Now, if we go back to unlocking the stock, we can see that at the close it was worth $1.26 billion,so if we enter at 1260 and then multiply this by 0.86, that will account for the 14% drop in after-hours trading. This means that Meta is trading for a market capitalization of approximately $1.8 billion in after-hours trading now if we divide this by trailing 12-month free cash. flow of 48.6 billion, this means the stock is now trading for about 22.3 times free cash flow, which honestly doesn't look too expensive for the meta because remember again, revenue is still projected to grow a 17% year over year in the next quarter.

One thing I don't know is whether the free cash flow of 48.6 billion will hold up over the next two years, while Meta lets everyone know that their capital expenditures will increase this year and next. Additionally, when we also take a look at the 8-year historical average price target for free cash flow, it is around 29, so the company's price for free cash flow in after-hours operations actually is significantly below its historical averages, so this could also suggest that perhaps the stock looks cheap, but again, I don't know what the free cash flow projections will be over the next few years or what the margins will be like with these higher capital expenditures, as I said earlier. on my channel I am not someone who can accurately predict the future metrics of the meta business and now it seems that some investors in after hours trading are thinking the same thing with the stock falling 14% now it is also worth noting that the stock They are up about 400% in the last 18 months, so the price of this stock could have been close to perfection or you were pricing in huge future growth or sustained growth in profitability, so in my opinion, a 14% decline is not too surprising, especially in those. massive increase in capital spending Outlook, it's quite interesting that Tesla missed analysts' expectations yesterday and the stock is up 10% today and now it beats the analysts' expectations and the stock is down 14% today, So it's pretty interesting that this is the market that we're currently in, but I think that's because Meta stock was priced pretty significantly higher compared to their expectations and you could say that Tesla could have been priced pretty significantly higher as well. a low price compared to your expectations, so now let's talk about meta valuation and what I'm doing today.

Well, personally, I'm not looking to buy meta stock at its current price because I want more. margin of safety because as I said earlier in the video and as I said on my channel during the previous months, I am not someone who can accurately predict the target business in the future, that's why I like to buy this stock or I would just buy the stock if I got what I thought was ridiculously cheap once again, like it was in November 2022, when it was selling for a free cash flow price of just 9. I don't think this stock is offering me Today again I have a margin of similar security, especially with increased capital expenditures going forward, so I'll stay on the sidelines now.

I'll keep it on my watch list, but it's not cheap enough for me to want to buy it. right now at least personally but with that being said let me know what you think in the comments section below and if you enjoyed this video remember to leave a like and if you are new to my channel and if you want to stay and see more earnings updates as they continue to appear over the next few weeks remember to also subscribe to my channel if you want to get my real time thoughts on earnings or if you want to ask me additional questions about the videos I post or my portfolios or anything like that then consider joining my patreon because you get a lot of extra benefits beyond what the YouTube channel gets.

The patreon is also the number one way to support my channel and all the work I do. I do it here on YouTube, but with that being said, thank you all so much for watching. I really appreciate it and I'll see you all tomorrow in my Google and Microsoft video.