Facebook stock $META will open up tomorrow at levels not seen since the beginning of 2016. If you buy, you will be paying the same price for Facebook as you would have back then. The difference? Back then the P/E ratio was around 80. Yes, 80. Now, paying the same price, you’ll be buying in at a P/E ratio around 10.
No matter what you think of the Zuck, and his joke of a metaverse (Gavin Belson territory disaster), what you must consider is whether Facebook’s business in 2022 is really that much worse than 2016. You may think this! That’s okay. You’d have some supporting evidence.
But in my view, on a pure cash flow and sum of the parts basis, Facebook is trading at an all time best valuation. A price to free cash ratio around 10 is a third of what it was in 2016. On the basis of its business today, Facebook is making 300% more gross profit than back then.
Yes, growth is slowing, and what we’re seeing in these earnings is screeching brakes. If you think this is it for Facebook, that no growth is in its future, then maybe this valuation makes sense.
But for me, it’s a chance to go back in time and increase my position as if I was back in 2016. Because I have a very hard time believing that this is where Facebook’s story ends. Instagram, WhatsApp, Oculus, all have room to grow and monetize. Who knows, maybe Zuck will realize the real money in the metaverse is putting 360 degree cameras on sports figures and allowing people to get a players-eye view during games; or creating virtual spaces for house of the dragon fans to become background extras while watching the latest episode; or anything other than a sad version of second life. Right now, it’s a gamble worth making.
6 years from now, you may be wishing you could go back to this moment.
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