As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently in our screens, Meta Platforms Inc (META).
Profile
Meta is the world’s largest online social network, with nearly 4 billion family of apps monthly active users. Users engage with each other in different ways, exchanging messages and sharing news events, photos, and videos. The firm’s ecosystem consists mainly of the Facebook app, Instagram, Messenger, WhatsApp, and many features surrounding these products. Users can access Facebook on mobile devices and desktops. Advertising revenue represents more than 90% of the firm’s total revenue, with more than 45% coming from the U.S. and Canada and over 20% from Europe.
Recent Performance
Over the past twelve months the share price is up 182.50%.
Inputs
- Discount Rate: 9.6%
- Terminal Growth Rate: 2%
- WACC: 9.6%
Forecasted Free Cash Flows (FCFs)
| Year | FCF (billions) | PV(billions) |
| 2024 | 44.54 | 40.64 |
| 2025 | 52.71 | 43.88 |
| 2026 | 62.37 | 47.37 |
| 2027 | 73.81 | 51.15 |
| 2028 | 87.34 | 55.23 |
Terminal Value
Terminal Value = FCF * (1 + g) / (r – g) = 1172.19 billion
Present Value of Terminal Value
PV of Terminal Value = Terminal Value / (1 + WACC)^5 = 741.22 billion
Present Value of Free Cash Flows
Present Value of FCFs = ∑ (FCF / (1 + r)^n) = 238.28 billion
Enterprise Value
Enterprise Value = Present Value of FCFs + Present Value of Terminal Value = 979.49 billion
Net Debt
Net Debt = Total Debt – Total Cash = -23.48 billion
Equity Value
Equity Value = Enterprise Value – Net Debt = 1002.97 billion
Per-Share DCF Value
Per-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $391.63
Conclusion
| DCF Value | Current Price | Margin of Safety |
|---|---|---|
| $391.63 | $486.12 | 24.13% |
Based on the DCF valuation, the stock is overvalued. The DCF value of $391.63 per share is lower than the current market price of $486.12. The Margin of Safety is 24.13%.
It is important to note that this valuation is based on a number of assumptions, and these assumptions could change in the future. This valuation is meant to be a back-of-the-envelope analyse that could be used as a starting point in a much more thorough valuation process. As a result, it is important to do your own research before making any investment decision.
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4 Comments on “Meta Platforms Inc (META) DCF Valuation: Is The Stock Undervalued?”
over valued
Yes. Overvalued.
If the DCF value is less than the current price, wouldn’t that make the current price overvalued by 24.13%
Yes. Overvalued.