Given
the
maturity
of
Facebook
and
Instagram,
can
the
firm
continue
its
streak
of
impressive
usage
gains?
Daily
active
users
across
apps
have
grown
around
7%
year
over
year
in
each
of
the
past
four
quarters,
including
7.3%
in
the
first
quarter.
At
some
point,
that
pace
will
slow.
As
with
Alphabet (GOOGL),
how
is
ad
demand
evolving?
Average
ad
pricing
was
up
6%
during
the
first
quarter,
following
declines
of
9%
in
2023
and
16%
in
2022.
Besides
questions
around
demand
from
Asian
retailers,
is
Meta
making
progress
in
improving
advertisers’
ability
to
target
users
and
measure
ad
effectiveness?
Does
the
company
and
Mark
Zuckerberg
have
additional
thoughts
on
how
the
firm
will
monetise
investments
in
artificial
intelligence?
The
areas
discussed
last
quarter
–
like
helping
businesses
with
customer
service
or
charging
for
access
to
LLMs
–
are
underwhelming,
given
the
large
number
of
firms
chasing
these
opportunities.
That’s
not
to
say
Meta
can’t
generate
growth
here,
but
the
ROI
on
its
massive
investments
may
not
be
great.
We
would
point
to
the
same
thought
on
spending
plans
as
with
Alphabet:
Investors
are
interested
not
only
in
how
any
changes
in
Meta’s
plans
could
affect
it
directly,
but
also
how
those
changes
could
affect
others,
like
Nvidia
(NVDA).
Key
Morningstar
Metrics
for
Meta
Platforms
• Fair
Value
Estimate:
$400.00
• Morningstar
Rating: ★★
• Morningstar
Economic
Moat
Rating:
Wide
• Morningstar
Uncertainty
Rating:
High
Fair
Value
Estimate
for
Meta
With
its
2-star
rating,
we
believe
Meta’s
stock
is
overvalued
compared
with
our
long-term
fair
value
estimate.
In
an
industry
in
which
continual
investment
is
required
to
compete
and
maintain
market
leadership,
we
believe
the
firm
is
well-positioned
in
terms
of
access
to
capital.
It
has
a
strong
balance
sheet
with
net
cash
of
$47
billion.
The
company
generated
$71
billion
in
cash
from
operations
in
2023
(41%
higher
than
the
prior
year),
mainly
due
to
the
return
of
top-line
growth
and
the
implementation
of
cost-control
policies.
While
capital
investment
remains
elevated
versus
earlier
years,
capital
spending
declined
to
$27
billion
in
2023
from
$31
billion
the
prior
year.
As
a
result,
free
cash
flow
more
than
doubled
to
$44
billion.
Read
more
about
Meta
Platforms’
fair
value
estimate.
Economic
Moat
Rating
We
assign
Meta
a
wide
moat
based
on
network
effects
around
its
massive
user
base
and
intangible
assets
consisting
of
a
vast
collection
of
data
users
have
shared
on
its
various
sites
and
apps.
Given
its
ability
to
profitably
monetise
its
network
via
advertising,
we
think
Meta
will
more
likely
than
not
generate
excess
returns
on
capital
over
the
next
20
years.
Since
it’s
the
clear-cut
social
media
leader,
we
believe
Meta’s
offerings
have
established
strong
network
effects,
whereby
all
these
platforms
become
more
valuable
as
more
people
use
them.
This
creates
barriers
to
success
for
social
network
upstarts
and
barriers
to
exit
for
users,
who
might
leave
behind
friends,
contacts,
pictures,
memories,
and
more
by
departing
to
alternative
platforms.
Read
more
about
Meta
Platforms’
economic
moat
Financial
Strength
Meta
declared
a
quarterly
dividend
of
$0.50
per
share
in
the
first
quarter
of
2024.
The
firm
will
likely
also
use
a
portion
of
its
cash
to
repurchase
shares
and
remain
active
with
acquisitions,
although
limited
by
continuing
FTC
antitrust
oversight.
Read
more
about
Meta
Platforms’
financial
strength
Risk
and
Uncertainty
Our
Uncertainty
Rating
for
Meta
is
High.
While
barriers
to
exit
may
be
increasing
for
users
of
Facebook
and
its
family
of
apps,
a
disruptive
or
innovative
technology
(recently
TikTok)
could
reduce
the
time
they
spend
on
Meta’s
apps.
Increased
usage
and
engagement
on
one
social
network
could
come
at
a
cost
to
other
social
networks,
reducing
engagement
and
the
potential
return
on
investment
for
advertisers.
Even
with
Meta’s
dominant
position
in
the
social
network
market,
its
dependence
on
online
advertising
exposes
it
to
a
lengthy
downturn
in
online
ad
spending,
which
could
happen
during
a
protracted
economic
downturn.
Read
more
about
Meta
Platforms’
risk
and
uncertainty
META
Bulls
Say
With
more
users
and
usage
time
than
any
other
social
network,
Meta
provides
the
largest
audience
and
the
most
valuable
data
for
social
network
online
advertising.
Meta’s
ad
revenue
per
user
is
growing,
demonstrating
the
value
advertisers
see
in
working
with
the
firm.
The
application
of
AI
technology
to
Metas
various
offerings,
along
with
the
launch
of
VR
products,
will
increase
user
engagement,
driving
further
growth
in
advertising
revenue.
META
Bears
Say
Meta
is
currently
a
one-trick
pony,
and
it
will
be
severely
affected
if
online
advertising
no
longer
grows
or
more
advertising
dollars
shift
to
other
platforms
like
Google
or
Snapchat.
Despite
rapid
user
growth,
many
of
Meta’s
customers
may
also
belong
to
other
social
networks,
such
as
Snapchat
or
TikTok.
The
firm
must
continually
fight
to
capture
a
user’s
time.
Regulations
could
emerge
that
limit
the
application
and
collection
of
user
and
usage
data,
or
restrict
acquisitions,
affecting
data
utilisation
and
growth.
This
article
was
compiled
by
Leona
Murray
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