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Spring 2022

Financial Analysis of Meta Platforms Inc

Anurag Yaddanapudi
Portland State University

Kaushik Chaudhary
Portland State University

Saumya Saxena
Portland State University

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 Financial Analysis of Meta Platforms Inc.

ETM 535: ADVANCED ENGINEERING ECONOMICS

SPRING 2022

Instructor: Dr. Liliya Hogaboam

Submitted By: Anurag Yaddanapudi
Kaushik Chaudhary
Saumya Saxena
 META PLATFORMS INC. | TEAM 6

ABSTRACT
Web3.0 is the latest generation of internet, which is about decentralization and democratization,
built on blockchain technology, high computer power and high-speed network. Metaverse
overlaps with Web3.0 in terms of decentralization and is built on the same base technologies but
talks about virtual realities and brings immersive experiences.

This study explores how the web has evolved over the years and analyzes the current market
trends of Web3.0. The purpose of the study is to examine the investments made by Meta
Platforms Inc. which is one of the market leaders of the Internet industry and provide an in-depth
financial analysis by evaluating its financial statements and different financial metrics. The study
also includes estimating the value of the company based on the Discounted Cash Flow valuation
method.

The valuation conducted in this study forecasts Meta Platforms Inc. to be a promising investment
with high positive returns. The valuation may be utilized by analysts for further analysis in their
research.

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 META PLATFORMS INC. | TEAM 6

Table of Contents

ABSTRACT 2

INTRODUCTION 4

TECHNOLOGY OVERVIEW 6

DATA COLLECTION 10

FINANCIAL ANALYSIS 11

Profitability Ratios 11
Liquidity Ratios 13
Solvency Ratios 15
Performance 18
COMPANY VALUATION 21

RISK & BENEFITS 24

CONCLUSION 26

FUTURE RESEARCH 27

REFERENCES 28

APPENDICES 30

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 META PLATFORMS INC. | TEAM 6

INTRODUCTION

Web 3.0 is the latest generation of the Internet which is decentralized and democratizing to bring
more personalized user experience. It is built on block chain technology, which addresses the
decentralization of the internet in everything we do on the internet [1].

Evolution of Web3.0

The internet has evolved over years, and what can be done with use of it, is almost
unrecognizable from its early days. The evolution of the web is categorized into three separate
stages: Web 1.0, Web 2.0, and Web 3.0 [2].

• Web 1.0 was the first generation of the internet. It was built for consumption of static
content, and the creators were typically who built web pages that contained information
served up mainly in text or image format. Web 1.0 lasted approximately from 1991 to
2004.
• Web 2.0 brings interaction with websites/web pages, what we are currently using is
Web2. This web is also called social, Be it social media, blogging, podcasting, or social
bookmarking.
• Web 3.0 There are a few fundamental differences between web2 and web3, but
decentralization is at its core. At core, Web 3.0 is a collection of technologies that brings
decentralization, security, and privacy. It is a Semantic web, which promises an
ecosystem, brings automation/intelligence through artificial intelligence and machine
learning and freedom.

Metaverse overlaps with Web3 as it is built on the same fundamental principles, but it also brings
in immersive experiences in everyday activities of human life from social interactions to gaming,
through virtual reality.

Meta Platforms Inc. (formerly known as Facebook Inc.) is a technology/social media company
that provides services/applications to connect humans, communities and help businesses to
reach masses. They are early adopters/movers of metaverse technology, with heavy investment

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 META PLATFORMS INC. | TEAM 6

from research & development to acquisition of technology to hardware needed to this

technology.

This study investigates how businesses of this technology are growing in terms of user growth,
potential market trends and financial investments. As part of this, we have reviewed and
analyzed the financial health of Meta Platforms Inc. using financial ratio analysis for a 5-year
period, 2017-2021. Based on this historical analysis, we have estimated the value of Meta
Platforms Inc. using the Discounted Cash Flow method.

Our study estimates Meta Platforms to grow for next 5 years at an approximate rate of 20-22%.
The forecasted intrinsic value is more than the current share price; hence the investment is
estimated to be a sound investment with positive returns for investors. During the research, we
have also identified some risks and benefits of the company.

Our valuation model can be used for further analysis by financial analyst, but it is limited with our
assumptions and estimates of future growth. Also, as far as Meta Platforms Inc. is concerned, it
has started reporting its financials for Reality Labs recently and it will be worthwhile to track their
investments and revenues in future and observe its impact on the overall financial health of the
company.

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 META PLATFORMS INC. | TEAM 6

TECHNOLOGY OVERVIEW
The new buzzword across different social platforms is Metaverse which is dominating the tech
world with virtual reality, future of the internet and rebranding oldest to newest platforms which
had been introduced during COVID-19 pandemic. Meta is the parent company of several
subsidiaries which includes Facebook, Facebook watch, Facebook portal, messengers, Instagram,
and WhatsApp. Based on current market caps it's world's highest grossing tech multinationals
ranking among Fortune50 companies. Besides that, this global growth of Meta had started with
acquisition of giphy, customer, mapillary and oculus that had made them a technology amalgam
that acts as building blocks for a variety of digital platforms and services- with fully integrated
digital environment which can allow users to interact with other users. However, other
companies like Apple, Microsoft, Alphabet aka Google are also entering these markets to
compete with Meta. In a nutshell, Metaverse could take at least 5 to 10 years before its features
and products become mainstream which can transform the Internet with its futuristic vision,
existence of humans in virtual communities.

How does this Meta work?

Metaverse is a digital universe for users to live, play, watch, interact, entertain, and engage in
every way imaginable. Users will be wearing AR and VR headsets to enter the Metaverse and
shop, eat and play with their friends in an infinite digital universe. It will revolutionize everything
from holding business meetings and conferences to attending concerts. For instance, we can visit
any shopping place globally and order it without any travel concerns etc.

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 META PLATFORMS INC. | TEAM 6

Figure 1 Metaverse enabling different technologies with use of blockchain [3]

Financial Overview of Meta platforms:

As of Q3 2021 Meta has been heavily invested in the gaming sector which is key for metaverse
world establishment and there was substantial user growth with use of Metaverse. Below figures
show the data:

Figure 2: Capital Investments of Meta [4] Figure 3: Growth of users at different w.r.t. Meta [4]

Meta is upgrading to web 3.0 user interface for better interaction b/w users, data privacy and
storage. Current market trends of Web 3.0 increased profits 2-fold and expected to grow at an
accelerated pace below figure 4 shows trend and figure 5 on virtual world revenue growth of all
companies globally. These huge investments laid down the foundation of metaverse years,
seeing the development and profit margin.

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 META PLATFORMS INC. | TEAM 6

Figure 4: Virtual word revenue growth in next 5yrs [5] Figure 5: Global Virtual world revenue growth [4]

Heavy Research has been done on what are most key segments in metaverse platforms and
growth in VR gaming sector platforms. Figure 6 shows potential markets in the metaverse.

Figure 6: Potential Markets globally in Metaverse [4]

AR/VR devices trends are studied as well to understand potential growth in the next five years as
that would be key Meta Platforms Inc. YOY Value and shipments had growth >5-10% and even
studied what potential areas could need to improve compared to metaverse. Below Figure 7
shows growth of AR/VR and application adaptability.

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 META PLATFORMS INC. | TEAM 6

Figure 7: AR/VR headset market growth and Applications [6,7]

From past 3 years Meta has been reporting the Reality lab earnings which showed almost 8
million devices sold with a unit cost of $300 and generated $2.4 billion in revenue. Loss has been
reduced from 2019 to 2021 -900% to -500% but showing steady improvement in revenue i.e.,
501 million to 2.3 billion as of 2021 and meeting customers goals.

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 META PLATFORMS INC. | TEAM 6

DATA COLLECTION
We explored financial statements reported by Meta Platforms Inc. from 2017-2021 and calculated data
as per below Table.
Table 1: Meta Platforms Inc. Financials

META PLATFORMS INC - Data from Income sheet ( All amounts are in US$ Millions)
Dec-21 Dec-20 Dec-19 Dec-18 Dec-17
Total Liability (D) 581 523 473
Total Assets (A) 165987 159316 133376 97334 84524
Total Equity ( E ) 124879 128290 101054 84127 74347
Total Capital 125460 128813 101527 84127 74347
Net income 39370 29146 18485 22112 15934
Income tax expense 7914 4034 6327 3249 4660
EBT (Net Income + Income tax expense) 47284 33180 24812 25361 20594 Cal. values
Interest Expense 15 14 20 9 6
EBIT (EBT+ Intrest expense) 47299 33194 24832 25370 20600 Cal. values
Depereciation and amortization 7967 6862 5741 4315 3025
EBITDA (EBIT + Depreciation and amortization) 55266 40056 30573 29685 23625 Cal. values
Enterprise value (Refer to L35 row) 599752 693202 542873 434618 519216
Net non cash charges 17613 12324 10579 8689 6395
Changes in assets and liablities 700 2723 7250 1527 1887
Net cash provided by operation activties (Net income+ Net
non cash charges + Changes in assets and liablities) 57683 44193 36314 32328 24216 Cal. values
Purchase of property and eqipment 18567 15115 15102 13915 6733
Principal payments on finance leases 677 604 552
Free cash flow to equity (Net cash - Purchase of property and
equipment- principal payments) 38439 28474 20660 18413 17483 Cal. values
FCFE per share (No shares of common stock outstanding *
FCFE) 14.12 8.09 7.25 5.38 6.02 Cal. values
Share price 237.76 265 209.53 166.69 193.09

Deferred income tax expense (benefit) 609 997 40 295 374

Increase (decrease) in deferred revenue 225 101 117 49 6

Increase (decrease) in equity equivalents 834 1098 157 344 380 Cal. values
Interest expense, operating lease liability 388 330 330
Adjusted interest expense 403 344 350 9 6 Cal. values
Tax benefit of interest expense 85 72 74 2 2

Adjusted interest expense, after taxes 318 272 276 7 4 Cal. values
Interest income 476 686 924 661 398
Investment income, before taxes 476 686 924 661 398 Cal. values

Tax expense (benefit) of investment income 100 144 194 139 139
Investment income, after taxes 376 542 730 522 259 Cal. values
Net operating profit after taxes (NOPAT) (Net income + non-
operating income loss – non-operating income gain + interest
expense + tax expense) x (1 – tax rate) 40147 27980 18109 21941 15311
Total reported debt and leases 14454 11177 10797 14651 4644
Equity equivalents 1133 1923 922 1090 1181
Adjusted stockholders equity 124429 125440 100621 83797 73393
Invested capital 92809 80951 65543 60125 41413
Total Revnue 117929 85965 70697 55838 40653
Increase or decrease deferred revenue 225 101 117 49 6
Adjusted Revenue 118154 86066 70814 55887 40659 Cal. values

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 META PLATFORMS INC. | TEAM 6

FINANCIAL ANALYSIS
We analyzed the financial statements of Meta Platforms Inc. using the various financial ratios.
The financial ratio analysis provided us valuable insights on company's liquidity, operational
efficiency, and profitability. The analysis become more worthy when performed for a period and
in reference to the industry average as well as competitors.

One of the great competitors of Meta in this industry is Alphabet and hence we have considered
Alphabet’s ratios for comparison in our study. In addition to this, we have also gathered data
about the industry average to examine how Meta performed in the industry. All the comparisons
are performed for a 5-year period, 2017 – 2021.

Profitability Ratios

Profitability ratios are used to assess a business's ability to generate earnings relative to its
revenue, operating costs, balance sheet assets, or shareholders' equity over time, using data
from a specific point in time [9]. In simpler terms, they measure a company’s ability to earn a
profit. Higher the ratio value, more favorable are the results. The following ratios are considered
for profitability:
o Return on Assets
o Return on Equity

Return on Assets
Profitability is assessed relative to costs and expenses and analyzed in comparison to assets to
see how effective a company is deploying assets to generate sales and profits [9]. ROA is
calculated as net income divided by total assets.

ROA = Net Income / Total Assets

The more assets accumulated by a company, the more sales and potential profits may be
generated by the company. This is because economies of scale help lower costs and improve
margins, returns may grow at a faster rate than assets, thereby increasing ROA.

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 META PLATFORMS INC. | TEAM 6

Key Highlights:

• Net income relative to total assets

• A significant dip from 2018 to 2019, however a
steady increase observed from 2019 to 2021
• Meta and Alphabet both have performed better
than their industry average
• Meta’s performance is better than Alphabet’s

Figure 8: ROA

Return on Equity

ROE is a key ratio used by shareholders as it measures a company's ability to earn a return on
its equity investments [9]. ROE is calculated as net income divided by shareholders' equity. It
may increase without additional equity investments. The ratio can increase if there is higher net
income being generated from a larger asset base funded with debt.

ROE = Net Income / Shareholder’s Equity

Key Highlights:

• Net income relative to shareholder equity

• A dip from 2018 to 2020, however a steady
increase observed in the last year of 2021
• Meta and Alphabet both have performed better
than their industry average
• Meta’s performance is better than Alphabet’s

Figure 9: ROE

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 META PLATFORMS INC. | TEAM 6

Liquidity Ratios
Liquidity ratios are an important class of financial metrics used to determine a debtor's ability
to pay off current debt obligations without raising external capital [10]. These are used to
measure a company's ability to pay its debt obligations. The following ratios are used to assess
Meta’s liquidity:

o Current Ratio
o Quick Ratio
o Cash Ratio

Current Ratio

The current ratio measures a company's ability to pay off its current liabilities (payable within
one year) with its total current assets such as cash, accounts receivable, and inventories [10].
The higher ratio signifies better liquidity position of the company. It is calculated as current
assets divided by current liabilities.

Current Ratio = Current Assets / Current Liabilities

Key Highlights

• Current assets to current liabilities

• A significant dip from 2017 to 2019,
however a steady increase observed from
2019 to 2021
• Ratio between 1.5 and 3 generally
considered healthy
• Meta and Alphabet both have performed
better than their industry average
• Meta’s performance is better than
Alphabet’s

Figure 10: Current Ratio

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 META PLATFORMS INC. | TEAM 6

Quick Ratio

The quick ratio, also known as acid-test ratio, measures a company's ability to meet its short-
term obligations with its most liquid assets [10]. It does not include inventories in its current
assets.

Quick Ratio = (Current Assets – Inventory – Current Expenses) / Current Liabilities

Key Highlights

• Quick assets to current liabilities

• Ability to pay short term obligations
• A significant dip from 2017 to 2019,
however a further slight decrease observed
from 2019 to 2021
• Meta and Alphabet both have performed
better than their industry average
• Meta’s performance is better than
Alphabet’s

Figure 11: Quick Ratio

Cash Ratio

The cash ratio is used to measure a company's liquidity. It is specifically calculated as the ratio
of a company's total cash and cash equivalents to its current liabilities. The metric evaluates
company's ability to repay its short-term debt with cash or near-cash resources [10]. This
information is helpful to creditors in deciding how much money can they loan to the company.

Cash Ratio = Cash + Cash Equivalents / Current Liabilities

Key Highlights

• Cash assets to current liabilities

• A significant dip from 2017 to 2019,
however a further slight increase observed
from 2019 to 202 but again a dip in
following year
• Meta and Alphabet both have performed
better than their industry average
• Meta’s performance is better than
Alphabet’s

Figure 12: Cash Ratio

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 META PLATFORMS INC. | TEAM 6

Solvency Ratios

Exploratory study on Meta platforms debts ratio to see whether it can meet all long-term
obligations with current inflation period in 2022. To determine these things, we estimated
following ratios from income statement for past five years and compared against Alphabet as
well industry ratio.
o Debt to equity
o Assets
o Capital ratio
o Financial Leverage
o Interest Coverage
o EBT vs EBIT vs EBITDA

Key Highlights

This is computed based on Total liabilities over

total equity (stakeholder's). Ratio is almost to
zero for Meta platforms in comparison to
Alphabet and sector ratio which depicts
company well stable in handling long term
debts even planned for long term investments.
2022 Q1 reported "0" debt to equity ratio.

Figure 13: Debt to Equity Ratio

Key Highlights

This is computed based on Total liabilities over

total assets. Similar behavior is seen compared
to debt-to-equity ratio and outperforming both
Alphabet and sector ratio. 2022 Q1 reported "0"
debt to equity ratio. This signifies Meta is using
their assets full-fledged compared to Alphabet
and sectors.

Figure 14: Debt to Asset Ratio

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 META PLATFORMS INC. | TEAM 6

Key Highlights

This is computed based on Total liabilities over

total capital. Similar behavior is seen compared
to debt-to-equity ratio and outperforming both
Alphabet and sector ratio. 2022 Q1 reported "0"
debt to capital ratio. This signifies Meta's capital
structure and financial solvency and degree of
leverage performing good.

Figure 15: Debt to Capital Ratio

Key Highlights

This ratio measures company’s mix of operating

expenses and to estimate how changes in
output income will impact operating incomes.
Meta Platforms Inc. financial leverage ratio
decreased from 2019 to 2020 but then
increased from 2020 to 2021 exceeding 2019
level, 2022 Q1 exceeded as well. (“Meta
Platforms Inc. (NASDAQ: FB) | Analysis of
Solvency Ratios”) Lower leverage ratio is
recommended to easily secure loan.

Figure 16: Financial Leverage Ratio

Key Highlights

Ratio of EBIT over interest expense of the

company. Higher the coverage ratio better
for the company here to handle on debts.
Meta showed better improvement from 2019
to 2021 (holding good on 2022) and will
exceed w.r.t Alphabet and sector ratio.

Figure 17: Interest Coverage Ratio

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 META PLATFORMS INC. | TEAM 6

Key Highlights

This ratio computed EBIT over Fixed charges

which includes interest and operating costs of
company. Ratio signifies whether company
can cover it fixed charges (debts, interest,
operating costs). Meta is showing steady
increase trend from 2019 to 2021 and
competing with Alphabet and sector ratio and
match with 2017 trends. High FCCR is better
for company.

Figure 18: Fixed Charge Coverage Ratio

Key Highlights

This ratio measures overall company financial

performance and total value determination.
Rule of thumb EV/EBITDA less than 10 is
healthy company. Meta is compared to over
years ratio is decreasing trend and surpassed
Alphabet and sector ratio.

Figure 19: EV/EBITDA Ratio

Key Highlights

Increasing trend of EBT, EBIT, EBITDA shows

company is performing better and well
balanced on their financials. There is
significant increase in these compared from
2019 to 2021.

Figure 20: EBIT/EBITDA Ratio

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 META PLATFORMS INC. | TEAM 6

Performance
Furthermore, analysis is performed in detailed to understand the performance, efficiency ratios
and segment profit margin and free cash flow to equity to know company performance in
metaverse area.

Key Highlights

Higher ROIC is better for the company. ROIC

improved from 2019 to 2020 and from 2020
to 2021.

Figure 21: ROIC Ratio

Key Highlights

Higher the turnover ratio, the more efficient

a company's ability to generate revenue
from its assets. Meta Platforms Inc. TO
deteriorated from 2019 to 2020 but then
improved from 2020 to 2021 exceeding
2019 level.

Figure 22: Turnover Ratio

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 META PLATFORMS INC. | TEAM 6

Key Highlights

Recently, Meta started reporting in

earnings- reality labs and family of Apps
which more in metaverse/web 3.0
investments. From 2019 to 2021 profit
margin ratio has improved a lot.

Figure 23: Segment Profit Ratio

Key Highlights

Reality Labs (RL) segment profit margin

ratio improved from 2019 to 2020 and
from 2020 to 2021

Figure 24: Profit Margin of Reality Labs

Key Highlights

YOY Meta platforms Inc has

tremendous growth in free cash flow
reflects towards stable company and
planned with huge investments.

Figure 25: Free cash flow to equity

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 META PLATFORMS INC. | TEAM 6

Key Highlights

YOY Meta platforms Inc has

tremendous growth in free cash flow
reflects towards stable company and
planned with huge investments.
Higher the value P/FCFE company is
valued, and its stock price is high. Due
to current inflation and covid 19 there
was significant drop in Meta platforms
and Alphabet, sector as well.

Figure 26: P/FCFE Ratio

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 META PLATFORMS INC. | TEAM 6

COMPANY VALUATION
After an in-depth analysis of the past financial performance of Meta Platforms Inc., we have estimated
the future value of the company. The model used for valuation is Discounted Cash Flow which estimates
the value of the company based on its future cash flows. The present value of the future cash flows is
determined based on the discount rate. In our study, we have used Weighted Average Cost of Capital
(WACC) as the discount rate. WACC represents a firm's average cost of capital from all sources, including
common stock, preferred stock, bonds, and other forms of debt [11]. In other words, through DCF
valuation we are estimating the money an investor would receive from investing in Meta Platforms Inc.
adjusted for the time value of money.

There are following assumptions made in doing the DCF valuation:

Market Assumptions Equity Assumptions Debt Assumptions
Risk-free rate 2.85% Beta 1.394 Pre-Tax Cost of Debt 5.00%
Market Risk Premium 4.72% Effective Tax Rate 17.97%
Cost of Equity = Risk-Free Rate + (β * Equity Risk Premium)
After-Tax Cost of Debt = Pre-Tax Cost of Debt (1 - Tax Rate)

Equity Debt
Cost of Equity 9.43% After-Tax Cost of Debt 9.43%
Market Value of Equity 535161.915 Market Value of Debt 13873
($M) ($M)

Firm Value = MV of Equity + MV of Debt

Firm
Firm Value Est. ($M) 549034.92
Initial Cash Flow ($M) 39116

Figure 28: Assumptions for DCF Valuation

Step 1: Forecast the future cash flows

• We estimated a short-term and a long-term growth rate to forecast the future cash
flows.
• The short-term growth rate is based on the Geometric Mean of growth rates reported
for previous years. We also adjusted this growth rate with an assumed inflation rate
of 3.5%.
• The long-term growth rate is estimated as 2.0% for calculating the terminal value of
the company at the end of 5-year period.

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Table 2: Short-term and long-term growth rates

Estimating future growth based on Geometric Mean

After adjusting
Year $M % Change inflation of 3.5%
2017 17,483
2018 15,359 -12.15%
2019 21,212 38.11%
2020 23,632 11.41%
2021 39,116 65.52%
2022 49,679 22.30% 18.80%
2023 32.85% 29.35%
2024 31.57% 28.07%
2025 37.15% 33.65%
2026 30.85% 27.35%

Long Term (Terminal) Growth Rate 2.00%

Step 2: Determine the discount rate

The WACC is considered as the discount rate in our DCF model. Using the below formula and
plugging in the all the required values from our assumptions given above, we calculated WACC
as 9.30%.

Step 3: Discount the forecasted cash flow to present day

The forecasted cashflow were discounted using Present Value formula at a rate of 9.30% (WACC).

We calculated the Present Value of each year’s forecasted cash flow using the PV function of MS
Excel.

• The intrinsic value of Meta Platforms Inc. is estimated to be $569.79.

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 META PLATFORMS INC. | TEAM 6

• The intrinsic value is greater than the current market price per share and hence Meta
Platforms Inc. is forecasted to have positive returns for investors.

Table 3: DCF Valuation Model

Valuation Model

Cal. Year Year Gr. Rate FCF ($M) Term. Val. Total PV
2021 0 18.00% 39,116 39,116
2022 1 18.80% 46,157 46,157 42,231.45
2023 2 29.35% 54,835 54,835 45,905.03
2024 3 28.07% 70,929 70,929 54,327.67
2025 4 33.65% 90,835 90,835 63,657.81
2026 5 27.35% 121,401 121,401 77,843.24
2027 6 2.00% 154,608 2,161,738 2,316,345 1,358,940.40
Firm Value 1,642,905.61
Debt Value 13,873.00
Equity Value 1,629,032.61
Shares Outstanding (mil) 2,859.00
Intrinsic Value/Share 569.79
Market Price/Share 191.63

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RISK & BENEFITS

Meta Inc. is heavily investing in this new technology and performing well on financial metrics,
but we cannot conclude without understanding Risks and benefits associated with it.

Company’s present and future risks

• There was a significant dip in performance during 2019, which also brought to light some
of the high-profile lawsuits and litigations.
• As the company has the world's biggest social media business, it has side effects on
people’s lives. This keeps raising controversies on data privacy, misuse of data, politics
and brings attention from regulatory bodies across the world and risks of different
regulations. Which has a direct impact on its business and future growth.
• With the rise of awareness, privacy regulation in some forms from government to other
companies, it threatens User engagement on its platforms. Which is visible in the
company's active user growth and direct on sales growth and revenue.
• To avoid further regulations and improve User’s trust, the company is spending
immensely on security, research, and development to censor dangerous content e.g., to
settle a class-action lawsuit concerning its biometric data collection, it paid$500 million
to plaintiffs.
• Some of the investments such as Meta’s cryptocurrency project called Libra failed and
was finally closed. This incurred huge losses for the company.
• There are other external factors as well, depending on which company is building the
metaverse e.g., better computer power, high speed data network, better hardware for
virtual realities. If one does meet its promise, it has a bigger risk.

Company has following benefits as well:

• Most important benefit of early mover advantage.

• Free cash flow growth is ~23%/year for the past 5 years, specifically after 2020 there is
improvement in its financial performance.
• Its investment in the gaming sector is paying well, gaining significant market share.

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 META PLATFORMS INC. | TEAM 6

• Profit margin at 33.4%, Operating margin at 40% and 31.5% return on equity indicate the
company is in a better financial position.
• Through its large array of social media platforms, it will be easy to introduce modern
technologies and bring people’s engagement. This will flourish its advertising business
and revenue.

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CONCLUSION
Web3 is poised to recapture the 1990s promise of a decentralized internet, free from
gatekeepers and trillions of dollars platforms. But it is full of contradictions, glitchy technology,
regulatory uncertainty, and competing economic interests. It is in its early adoption phase but
promises vast potential and boom-bust cycles ahead. Web3 overlaps with the Metaverse which
is a new technology based on virtual realities and fosters new ways for people to socialize and
work. Meta’s move is a reminder that the Web2 giants are not sitting still. In the end, Web3 is
unlikely to displace them.
Meta Platforms (FB) posted a first-quarter loss of $2.96 billion in its recently created Facebook
Reality Labs (FRL) division, which comprises its augmented and virtual reality operations. For
2021, Facebook reported a loss of $10.2 billion on revenue of $2.3 billion for FRL. Currently due
to investment/expenses on FRL, losses are huge, but revenue shows an increasing trend.
As per latest statement from Meta CEO, “We’re laying the groundwork for what I expect will be
very existing 2030.” []
Through this in-depth research of Meta Platforms Inc. armed with our financial analysis and
valuation, we estimate the company to grow at a significant rate of ~ 20%. Meta Platforms Inc.
serves as a promising investment with good positive returns for the investors.

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FUTURE RESEARCH
In future we plan to expand our studies on below areas:

• Explore and understand how Web3 and Metaverse as technology evolves and monitor the future
trends for application of it. Gather information around which sectors these applications will be
used and its financial aspects.

• Track Reality Labs (FRL) division’s investments and revenues/losses from company’s earnings
announcement and financial reports. Through these numbers analyze what impact its producing
on Meta’s financial health.
• Perform a Cost Benefit Analysis of Reality Labs division to get insights of its performance and
future direction.
• Monitor the growth rate specifically for DCF to see if it matches with our estimates or how much
it deviates from our analysis. Examine if the company’s value grows as per our valuation analysis.

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REFERENCES
1. Devanshish Gupta, Sunil K Singh, 2022; ‘Evolution of the Web3.0: History and the future’,
Insights2Techinfo

2. Preethi Kasireddy, 2021; ‘What do Web2.0 and Web 3.0 mean? Which one is better?’
https://www.preethikasireddy.com/post/what-do-web-2-0-and-web-3-0-mean-which-
one-is-better

3. Gadekallu, T. R., Huynh-The, T., Wang, W., Yenduri, G., Ranaweera, P., Pham, Q. V., ... &
Liyanage, M. (2022). Blockchain for the Metaverse: A Review. arXiv preprint
arXiv:2203.09738.

4. Grayscale Research November 2021 the Metaverse. https://grayscale.com/wp-

content/uploads/2021/11/Grayscale_Metaverse_Report_Nov2021.pdf.

5. “Facebook, Microsoft and Others Look towards the $1 Trillion Dollar 'Metaverse'
Opportunity - but That Contradicts the Base Philosophy behind Web 3.0.” Business
Insider, 28 Nov. 2021, https://www.businessinsider.in/investment/news/facebook-
microsoft-and-others-look-towards-the-1-trillion-dollar-metaverse-opportunity-but-
that-contradicts-the-base-philosophy-behind-web-3-0/articleshow/87959802.cms.

6. Metaverse report-future is here: Global XR Industry Insight: Deloitte China: TMT industry.
Deloitte China. (2022, March 22). Retrieved June 3, 2022, from
https://www2.deloitte.com/cn/en/pages/technology-media-and-
telecommunications/articles/metaverse-whitepaper.html

7. Global TMT Sector: Metaverse: A guide to the next-gen internet. (n.d.). Retrieved June 4,
2022, from https://www.credit-suisse.com/media/assets/corporate/docs/about-
us/media/media-release/2022/03/metaverse-14032022.pdf

8. Veronica Barassi, Emiliano Trere, 2012; ‘Does Web 3.0 come after Web 2.0?
Deconstructing theoretical assumptions through practice’, Sage Journals

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9. Adam Hayes, 2021; ‘Profitability Ratios’, Guide to Financial Ratios - Investopedia

https://www.investopedia.com/terms/p/profitabilityratios.asp#:~:text=Profitability%20r
atios%20are%20a%20class,a%20specific%20point%20in%20time

10. Adam Hayes, 2021; ‘Liquidity Ratios’, Guide to Financial Ratios – Investopedia
https://www.investopedia.com/terms/l/liquidityratios.asp#:~:text=Key%20Takeaways-
,Liquidity%20ratios%20are%20an%20important%20class%20of%20financial%20metrics
%20used,ratio%2C%20and%20days%20sales%20outstanding

11. Marshall Hargrave, 2022; Weighted Average Cost of Capital, Investopedia

https://www.investopedia.com/terms/w/wacc.asp

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APPENDICES

Appendix A: Meta Platforms Inc. Income Statement 2021

10-k report
20211231.pdf

Appendix B: Meta Platforms Inc. Income Statement 2020

10-k report
20201231.pdf

Appendix C: Meta Platforms Inc. Income Statement 2019

10-k report
20191231.pdf

Appendix D: Meta Platforms Inc. Income Statement 2018

10-k report
20181231.pdf

Appendix E: Meta Platforms Inc. Income Statement 2017

10-k report
20171231.pdf

Appendix F: Financial Calculations

Meta Platforms Inc.

Calculations.xlsx

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