Meta: Buyback Could Be Key Catalyst

Seeking Alpha2022-02-23

SummaryShares hit new 52-week low after dismal earnings report.Class A share count finally starting to come down.Free cash flow could allow for significant repurchases.So far this earnings season, ...

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Comments

LimLS
2022-02-24
LimLS
Vested. Like many, I think it's undervalued. Buyback from Meta will also shows the market that they also think it's undervalued. But before that actually happens, let's control our allocation risk and not get too exposed by excessively buying the dips. Let's not count the chickens before the eggs hatch.
ECHP
2022-02-24
ECHP
ok
tongfee
2022-02-24
tongfee
If your holding power is strong, u can buy dip for FB. [Observation] [Observation] [Observation]
WaiSiong81
2022-02-24
WaiSiong81
👍
time to eat
2022-02-24
time to eat
Just buy
wkeat
2022-02-24
wkeat
Yup, under value in huge way

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Shares of the company have lost more than a third of their valuesince announcing an earnings miss and giving disappointing revenue guidance. However, as this stock continues to drop, the market cap is getting to the point where the company's buyback could become a key catalyst moving forward.For Q4, revenues grew by 20% over the prior-year period to $33.67 billion, which actually beat street estimates. However, GAAP earnings per share missed by 16 cents, as the company continued to spend heavily on investments in the Metaverse. Unfortunately, management also guided to first quarter 2022 revenues in a range of $27-29 billion, which represents just 3-11% year-over-year growth, and even the high end of that range fell short of the $30.27 billion consensus.The amount of negativity I've seen surrounding this company since the earnings report has rivaled that of names I've seen go out of business soon thereafter. However, one must remember that we're still talking about a company guiding to at least $27 billion of revenue in what's usually its seasonally weakest time of the year. Let's not also forget that Meta continues to produce a significant amount of free cash flow, as the table below shows.Key Financials (Meta Cash Flow Statements)Even though net income this year may not end up more than last year's, we still could see roughly the same amount of cash flow given all of the add-backs (depreciation, stock-based compensation, etc.). Nobody knows at this point whether management will make any big acquisitions in 2022, but for this argument, let's assume that a majority of the cash flow is spent to repurchase shares, especially after they have crashed recently.For those that don't know, Meta is one of a number of tech companies that have two classes of shares. Class A shares are the ones that trade in the market every day, while Class B are non-trading and mostly held by early insiders, Mark Zuckerberg, etc. Class B shares can be exchanged for Class A, and Class B shares contain 10 voting rights per share while Class A shares only get one voting right. As of January 28th, according to the company's 10-K filing, there were roughly 413 million Class B shares. Below, you can see a history of Class A shares.Class A Shares Outstanding (Facebook SEC Filings)To calculate the total market cap for Meta, you add the two share counts together and multiply by stock price, which was $206.16 for last Friday's close. Thus, the total value of the company is a little more than $561 billion at this point, with hundreds of billions lost as shares have fallen since earnings. However, if you want to think about the potential power of the buyback, it's really only important to look at Class A shares, which are the ones being repurchased right now.The total market cap of just the Class A shares was $476 billion as of Friday's close, or a little less than 85% of the company's total market cap. When most people look at a buyback for a name like Meta, they would base the buyback off the $561 billion figure, but that's not really accurate here. Yes, the Class A share count won't come down at a number equal to the shares repurchased, because there are some offsets like stock-based compensation and Class B conversions. However, we are only today looking at what the buyback can do in isolation, as those other two items can vary from year to year.Going into the Q4 earnings report, the Class A market cap was nearly $750 billion. If we assume $35 billion a year in share repurchases, that would have meant about 4.69% of shares outstanding could be bought back, before counting the dilutive items I mentioned above. At last Friday's close, that same $35 billion would get the company 7.35% of its shares, a nearly 57% increase. If Meta shares were to fall below $200 this week on Russia/Ukraine tensions and Fed policy worries, the math gets even more favorable. I should also point out that the average price target among street analysts is currently $339, so the street thinks the name is massively undervalued right now.","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":9030808865,"gmtCreate":1645671514915,"gmtModify":1676534052065,"author":{"id":"3572923586954779","authorId":"3572923586954779","name":"LimLS","avatar":"https://static.tigerbbs.com/217b03b0c4808fb537070ba4e8f9d83f","vip":1,"crmLevel":5,"crmLevelSwitch":1,"authorIdStr":"3572923586954779","idStr":"3572923586954779"},"htmlText":"Vested. Like many, I think it's undervalued. Buyback from Meta will also shows the market that they also think it's undervalued. But before that actually happens, let's control our allocation risk and not get too exposed by excessively buying the dips. Let's not count the chickens before the eggs hatch.","listText":"Vested. Like many, I think it's undervalued. Buyback from Meta will also shows the market that they also think it's undervalued. But before that actually happens, let's control our allocation risk and not get too exposed by excessively buying the dips. Let's not count the chickens before the eggs hatch.","text":"Vested. Like many, I think it's undervalued. Buyback from Meta will also shows the market that they also think it's undervalued. But before that actually happens, let's control our allocation risk and not get too exposed by excessively buying the dips. Let's not count the chickens before the eggs hatch.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9030808865","repostId":1102840050,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9030809530,"gmtCreate":1645671068663,"gmtModify":1676534052011,"author":{"id":"3582659413330616","authorId":"3582659413330616","name":"ECHP","avatar":"https://static.itradeup.com/news/2612a9aaf6e7b5436051253de72e2157","vip":1,"crmLevel":2,"crmLevelSwitch":1,"authorIdStr":"3582659413330616","idStr":"3582659413330616"},"htmlText":"ok","listText":"ok","text":"ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9030809530","repostId":1102840050,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9030150520,"gmtCreate":1645665757603,"gmtModify":1676534051024,"author":{"id":"4095172669411230","authorId":"4095172669411230","name":"tongfee","avatar":"https://community-static.tradeup.com/news/a27351761415dd5a648eda5c4e3033aa","vip":1,"crmLevel":5,"crmLevelSwitch":1,"authorIdStr":"4095172669411230","idStr":"4095172669411230"},"htmlText":"If your holding power is strong, u can buy dip for FB.&nbsp;[Observation]&nbsp;[Observation]&nbsp;[Observation]&nbsp;","listText":"If your holding power is strong, u can buy dip for FB.&nbsp;[Observation]&nbsp;[Observation]&nbsp;[Observation]&nbsp;","text":"If your holding power is strong, u can buy dip for FB. [Observation] [Observation] [Observation]","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9030150520","repostId":1102840050,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9030127714,"gmtCreate":1645665708063,"gmtModify":1676534051008,"author":{"id":"4092698747642690","authorId":"4092698747642690","name":"WaiSiong81","avatar":"https://static.tigerbbs.com/81c10c8d3ad2387a719eaa62a541371f","vip":1,"crmLevel":1,"crmLevelSwitch":0,"authorIdStr":"4092698747642690","idStr":"4092698747642690"},"htmlText":"👍","listText":"👍","text":"👍","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9030127714","repostId":1102840050,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9030166455,"gmtCreate":1645663774665,"gmtModify":1676534050663,"author":{"id":"3583412008066274","authorId":"3583412008066274","name":"time to eat","avatar":"https://static.tigerbbs.com/c3d6a537cecde2d1daeefa1dd8ff6f99","vip":1,"crmLevel":6,"crmLevelSwitch":0,"authorIdStr":"3583412008066274","idStr":"3583412008066274"},"htmlText":"Just buy","listText":"Just buy","text":"Just buy","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9030166455","repostId":1102840050,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9030181752,"gmtCreate":1645662294885,"gmtModify":1676534050259,"author":{"id":"4106632262765430","authorId":"4106632262765430","name":"wkeat","avatar":"https://community-static.tradeup.com/news/39909997b3f70208a89fa1585a5f067d","vip":1,"crmLevel":2,"crmLevelSwitch":0,"authorIdStr":"4106632262765430","idStr":"4106632262765430"},"htmlText":"Yup, under value in huge way","listText":"Yup, under value in huge way","text":"Yup, under value in huge way","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9030181752","repostId":1102840050,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":292,"commentSize":24,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1102840050"}