$META Breakout Abounds

29 thg 7, 2022

Short-Term
QQQ has to stay flat/bullish for this to work, but big time RSI divergence and falling wedge says a breakout is soon on the way.

Bad earnings & worse guidance could not break the 157 support so I finally bought in there after watching it for a long while.
Super undervalued to me, I calculated worst case 220 per share even with continuing bad earnings/ recession and then no growth back to prior free cash flow with those bad earnings.

Looks like peak extreme pessimism abounds here, 90% of comments on stock forums I see are EXTREMELY bearish/ negative which leads me to believe everyone that wants to sell or short has -- everyone knows the economy is slowing, ad market is slowing, fed is tightening, earnings/ revenue is falling, so, priced in now.



Long-Term
Biggest bearish thesis is Meta/ Facebook is a fad, but since 2011 people have been saying this and users that were expected to crash are flat at 1/3 the global population. Only 9% of that 3 billion are people from the US/Canada, so maybe 6% of Meta users are from the U.S. -- Meta is the most global tech company. I think global weakness (European yield spreads blowing out, Egyptian, etc.. bonds crashing) is hurting Meta way more than any bearish thesis like the parroting that it is a fad. DXY is falling now on Fed expectations so this will be easing.

Once that tension eases fully the company can get back to growing users and average revenue per user in countries ex. US & Canada, and the upside once they do that is absolutely shockingly high.
(MAU == monthly active users, FCF == Free-Cash Flow, ARPU == Rest of World)
ARPU in US & Canada:
@ U.S. ARPU: $48.29 * 263MM MAU == 12.7B quarterly revenue * 35% FCF margin == 4.45B FCF per quarter
ARPU in Europe:
@ Europe ARPU: $15.35 * 418MM MAU == 6.4B quarterly revenue * 35% FCF margin == 2.245B FCF per quarter
@ U.S. ARPU: $48.29 * 418MM MAU == 20.2B quarterly revenue * 35% FCF margin == 7B FCF per quarter
ARPU in Asia & Pacific:
@ Asia & Pacific ARPU: $4.54 * 1.305B MAU == 5.92B quarterly revenue * 35% FCF margin == 2.07B FCF per quarter
@ U.S. ARPU: $48.29 * 1.305 MAU == 62.6B quarterly revenue * 35% FCF margin == 21.92B FCF per quarter
ARPU in Rest of World:
@ Rest of World ARPU == $3.35 * 959MM MAU == 3.2B quarterly revenue * 35% FCF margin == 1.12B FCF per quarter
@ U.S. ARPU == $48.29 * 959MM MAU == 46.3B quarterly revenue * 35% FCF margin == 16.21B FCF per quarter

This is not slow growth, mind you this is during a very negative time for the global economies:
MAU in Asia & Pacific is up 1.038B --> 1.305B, 26% from pre-COVID
ARPU in Asia & Pacific is up $3.57 --> $4.45, 25% from pre-COVID

MAU in Rest of World is up 817MM --> 959MM, 17.50% from pre-COVID
ARPU in Rest of World is up $2.48 --> $3.35, 35% from pre-COVID



Putting this all together, this a potential 200B FCF per year.
If you are bullish on global economic/ e-commerce growth, Meta is the perfect conduit to bet on that. If META can achieve this or anything close to it, it is a $535 stock today. This quite optimistic, but is just to prove the point that potential revenue growth for META is no where near what the market thinks it is. Stocks with this potential do not trade at 14x next years earnings. In its most important markets, META still has blistering user growth, people are still joining META apps by the tens of millions, up another 100 million people from this time last year.