Stock Analysis on Net

Meta Platforms Inc. (NASDAQ:META) 

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.


Intrinsic Stock Value (Valuation Summary)

Meta Platforms Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 15.30%
01 FCFE0 51,465
1 FCFE1 63,518 = 51,465 × (1 + 23.42%) 55,089
2 FCFE2 76,503 = 63,518 × (1 + 20.44%) 57,546
3 FCFE3 89,865 = 76,503 × (1 + 17.47%) 58,626
4 FCFE4 102,885 = 89,865 × (1 + 14.49%) 58,213
5 FCFE5 114,729 = 102,885 × (1 + 11.51%) 56,299
5 Terminal value (TV5) 3,375,567 = 114,729 × (1 + 11.51%) ÷ (15.30%11.51%) 1,656,454
Intrinsic value of Meta Platforms Inc. common stock 1,942,228
 
Intrinsic value of Meta Platforms Inc. common stock (per share) $769.35
Current share price $599.81

Based on: 10-K (reporting date: 2023-12-31).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

Microsoft Excel
Assumptions
Rate of return on LT Treasury Composite1 RF 4.89%
Expected rate of return on market portfolio2 E(RM) 13.87%
Systematic risk of Meta Platforms Inc. common stock βMETA 1.16
 
Required rate of return on Meta Platforms Inc. common stock3 rMETA 15.30%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rMETA = RF + βMETA [E(RM) – RF]
= 4.89% + 1.16 [13.87%4.89%]
= 15.30%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Meta Platforms Inc., PRAT model

Microsoft Excel
Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Net income 39,098 23,200 39,370 29,146 18,485
Revenue 134,902 116,609 117,929 85,965 70,697
Total assets 229,623 185,727 165,987 159,316 133,376
Stockholders’ equity 153,168 125,713 124,879 128,290 101,054
Financial Ratios
Retention rate1 1.00 1.00 1.00 1.00 1.00
Profit margin2 28.98% 19.90% 33.38% 33.90% 26.15%
Asset turnover3 0.59 0.63 0.71 0.54 0.53
Financial leverage4 1.50 1.48 1.33 1.24 1.32
Averages
Retention rate 1.00
Profit margin 28.46%
Asset turnover 0.60
Financial leverage 1.37
 
FCFE growth rate (g)5 23.42%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Company does not pay dividends

2 Profit margin = 100 × Net income ÷ Revenue
= 100 × 39,098 ÷ 134,902
= 28.98%

3 Asset turnover = Revenue ÷ Total assets
= 134,902 ÷ 229,623
= 0.59

4 Financial leverage = Total assets ÷ Stockholders’ equity
= 229,623 ÷ 153,168
= 1.50

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 1.00 × 28.46% × 0.60 × 1.37
= 23.42%


FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (1,514,213 × 15.30%51,465) ÷ (1,514,213 + 51,465)
= 11.51%

where:
Equity market value0 = current market value of Meta Platforms Inc. common stock (US$ in millions)
FCFE0 = the last year Meta Platforms Inc. free cash flow to equity (US$ in millions)
r = required rate of return on Meta Platforms Inc. common stock


FCFE growth rate (g) forecast

Meta Platforms Inc., H-model

Microsoft Excel
Year Value gt
1 g1 23.42%
2 g2 20.44%
3 g3 17.47%
4 g4 14.49%
5 and thereafter g5 11.51%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 23.42% + (11.51%23.42%) × (2 – 1) ÷ (5 – 1)
= 20.44%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 23.42% + (11.51%23.42%) × (3 – 1) ÷ (5 – 1)
= 17.47%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 23.42% + (11.51%23.42%) × (4 – 1) ÷ (5 – 1)
= 14.49%