No. of Recommendations: 10
I think Meta is one of the better kept secrets right now. The moat may be stronger than it looks-it doesn’t look great today because revenue is 100% advertising and earlier social media clones have come and gone. But in a few years, I expect investors will look back on Meta's present huge AI/cloud investments as not foolish, but oppositely—intelligent and maybe even brave capital allocation - given it is going against a booing crowd suffering recency bias from Meta's (literally insane) Metaverse spendings. Meta is a bit like a hydra — cut it in half, or slice parts off it, and itcan keep growing owing to the scale of the user visibility and ability to introduce new products into its moat. Forward PE right now of ~18x (a little below the 10 year historical average forward PE), with the net margin right on the average of the last 10 years, and the last decade with sales per share averaging 28%. That was not a typo. The moat, though, is stronger than it has ever been and deserves a higher PE than typicalm rather than lower.
Meta have increased their capacity to introduce/convert new products into their existing moat at almost no cost for obscene returns on incremental capital. The most notable example to me was Meta being nowhere in the Twitter/X short message market 2.5 years ago, to surpass the market share of Twitter/X - something normally simple a pipe-dream for normal companies to achieve (that is, surpassing Twitter/X at their own game when starting from nothing), Meta's simply used their moat - they hacked together a clone called Threads out of nothing, released it into their moat, and in just 3 years they went from 0% market share to 500 million monthly active users. That's not normal, but that's also not the last time it introduces new social media products as near zero-cost. They can also pivot products—for another example, their mobile feed transitioning into Reels, neutralizing TikTok's earlier threat.
Meta's cloud infrastructure may surprise Wall St a couple of years down the track because they have such a large runway to (1) improve advertising targeting, and (2) greater ease of advertising setup. Gosh it is hard to set up an ad with Meta today - imagine if you just gave a paragraph brief what you need to promote plus one or two links, and Meta set up the entire capaign, with some followup questions about the target audience, and you click go. The reason most businesses do not invest in online advertising is because they don't know how to do with sufficient targeting specificity to have a positive return, or they don't the labor resource to dedicate to working that out and executing it - too hard basket, so they don't even start a compaign (I'm refering to all of small, medin and large businesses). Meta's targeting is on par with Google's right now - or identity specificity even little better, but which thus far isn't being close to fully utilized.
Both Meta and Google have a long runway ahead for targeting efficiency, and auction prices rise with targeting efficiency. Meta has also officially formed an internal initiative "Meta Compute" to begin selling access to its excess AI computing capacity to outside customers—a move similar to Google's, creating a massive, high-margin revenue source that the market is still assigning near-zero value to.
Meta looking good at $582 today.
- Manlobbi
