Ian AinsworthMeta Platforms IncMETAHOLDAug 29, 2012

It's a 2027 story on compute which will enjoy great tailwinds for the rest of the year.

He was disappointed by their quarter and call. It sounds like the CEO isn't sure whether to use Meta's massive compute power for themselves or rent it to others. Meta didn't seem to have a plan. But shares rose thanks to the Amazon halo, up 6% today.

They just reported a revenue beat, but earnings missed due to a $2.4 billion in legal contingencies. Guidance for this quarter was weak and they narrowed their full-year capex forecast, raising it slightly. Shares are getting killed after hours. The stock is trying his patience. Wants their AI spending to be more creative to monetize Whatsapp

Of the hyperscalers, Meta has the most off-balance sheet debt. This and given the carnage in semis stocks, he wouldn't touch this.

Are concerns about capex spending by Meta and peers. But Meta can increase cash flow because of their consumer base. Can these companies support future capex spending? They would need cash flow support. And within their base business, do they have pricing power, and other businesses that can generate revenue? For Meta: yes to all.

She likes it; it shows Meta being financial savvy and maximizing returns.

They execute. Their PE hasn't been this low since late 2022/early 2023. 

He just bought it as a new buy. For 2 years, there's been criticism of their AI spend, but recently they've gone from blindly spending to a path to revenue though isn't sure if their new Spark 1.1 will be profitable. But they can sell some of their space within their compute, which makes them a competitor to Google and Amazon. He likes how they're branching beyond an ad company.

Trades at 20x PE, but has gone from huge free cash flow to low. But they have $200 billion revenue from their social media business, which is growing at 28%. It will probably return to free cash flow positive. The CEO will prove that he's focused on efficiency. It's the only Mag 7 stock she will buy.

Investors are concerned about how much $$ it's spending -- will it pay off in the long term? We'll see. Compared to AMZN and GOOG, it's not really in the cloud; recent announcement of neocloud still leaves them behind the 8-ball. 

Moving down for past year, 200-day MA flat to slightly trending lower. Not expensive, under 1x PEG. Earnings growth of 15%, 20x forward PE. 

Remember, it took Amazon, Google and Microsoft a decade to build their cloud businesses, so this will not happen overnight for Meta, if it happens. It would diversify their companies, so that's good, instead of 100% ads. She's tired of them spending and not delivering he results. So many question marks about how they will grow. She is looking elsewhere. They lost $8 billion on Reality Labs. A headache.

Trades at only 17x PE, as the street's been concerned that all its capex is not being utilized properly. Starting to sell some excess capacity in the neocloud. Needs to improve ROIC, and stop spending $$ on tangential projects. People are cautious. Monetization is seeing some traction. Likes it at these levels.

Bloomberg reported that Meta is planning a cloud business to sell AI computing. Shares jumped 11% or $50. He had predicted $100 eventually, and shares have more room to run. Their enterprise cloud will be instantly profitable. The company is too focused on consumers and ads.

Down 15% this year though the QQQ is up 15% because the chip stocks have become a bigger weighting. Meta is not executing and pivoting on a daily basis. Meta is burning money, figuring out what to do, but should focus on Instagram, Facebook and WhatsApp and their glasses. Those areas are doing great.

Not expensive, trading at 17x PE, gross margins of 82% and operating margins of 41%. But it's spending alot of money, and it lacks a cloud business, unlike its peers. AI is increasing their revenues to engage and shop more.