Meta Platforms: Enough Pain Due To Russia – Seeking Alpha

Social Media Restrictions

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Due in part to the issues surrounding Facebook and Instagram in Russia, Meta Platforms (FB) continues to trade at new lows. Investors should be reminded of how little the country contributes to the revenues of the social media platforms. My investment thesis is now turning more Bullish on the stock after a nearly $50 dip from my previous warning of more weakness ahead following the outrageous ramp up in spending for 2022.

FB stock Chart

Source: FinViz

Russia Blip

Meta Platforms has fallen below $190 on general market weakness due to the Russian invasion of Ukraine. On top of this issue, Facebook and Instagram appear to have ~60 million users in Russia with the potential for access to be blocked due to the Russian government.

The current access to the platforms appear spotty with the Russian regulators restricting access to the platforms due to calls for violence. According to some reports, individuals are downloading VPNs allowing for the person to bypass government restrictions.

Meta Platforms has over 2.8 billion DAUs (daily active users), so clearly the loss of all of the Russian users wouldn’t impact the user base to a great degree. The Russian user base is only ~2% of total users.

Though, the key is that Russia provides limited advertising revenues. Facebook European ARPU was $15.49 last Q1, but Russia falls more into the Rest of World category where ARPU was only $2.64.

Facebook average revenue per user (ARPU)

Source: Meta Platforms Q4’21 presentation

Even an expected ARPU of $3 for Q1’22 would only amount to $180 million in lost revenues for the quarter. The consensus analyst estimate is for Meta Platforms to produce quarterly revenues of $28.4 billion.

At the Morgan Stanley Tech. Conference last week, CFO David Wehner outlined the Russian impact as 1.5% of revenues:

The Russian government announced that they are blocking Facebook and we are working to try and keep our services available to the greatest extent possible, but we are seeing the blocking have an impact. And then also just due to the difficulties of operating in Russia at this time, consistent with what we have seen many others in the industry and across industries too, we are no longer accepting ads from Russian advertisers for Russian users. And to give it a sense of the magnitude on that, in 2021, those categories accounted for about 1.5% of advertising revenue. So, it will have an impact in 2022. And then not surprisingly, more broadly than just the Russia exposure, we are also experiencing some softness in Europe beyond that as well due to the conflict.

The bigger issue is potential weakness spillover beyond Russia into the rest of Europe. Total European revenue last Q1 was $6.4 billion, so the biggest issue to Meta Platforms would be any extended conflict in Ukraine carrying over into other countries. In past conflicts around the globe, advertisers will pause for a period and quickly return to prior levels of ad spending.

The stock definitely shouldn’t be falling any material amounts due to Russia. The conflict could actually boost usage in other regions such as Eastern Europe where people want to find out updated information about family and friends in Ukraine.

Suddenly Cheap

Now that the stock has fallen so dramatically, the investment story is far more interesting. Meta Platforms aggressively investing in the business was definitely going to cause more stock weakness following the original dip, but this level is more appealing with the profit picture completely reset.

Analysts now forecast Meta Platforms generating a 2022 EPS of $12.42 (down 10%) and 2023 EPS of $14.73 (up 19%). The stock now has a PE ratio of only 13x 2023 EPS targets.

FB stock forward P/E ratio
Data by YCharts

The stock is starting to have solid downside protections. Meta Platforms spent $44.5 billion on share buybacks in 2021 leading the company to repurchase 8.4% of the current market cap equal to the Net Payout Yield.

FB stock payout yield and stock buybacks
Data by YCharts

The company has a current stock buyback of $39 billion in place. At the current market cap of $510 billion, a similar buyback in 2022 would repurchase up to 7.6% of the outstanding shares.

Meta Platforms is aggressively investing in capex at $30+ billion this year which will cut back on free cash flows generated this year, but the company has a cash balance of $48 billion to contribute to a big buyback.

In addition, Meta Platforms has major levers to boost profits by reducing spending levels or starting to generate greater revenues from the Metaverse business to offset the heavy spending. Either way, the social media giant won’t continue building on top of the $3.3 billion losses produced by the Reality Labs division in Q4’21.

Takeaway

The key investor takeaway is that Meta Platforms is suddenly cheap falling another quick $50 dip in the stock due to the spending fears and the potential loss of Russian traffic. The stock now has substantial downside protection from the large buybacks and the potential to pullback on heavy spending on the Metaverse to quickly boost earnings.

Investors should use the recent weakness to start looking for the right time to build a position in Meta Platforms while realizing the stock still remains in a downtrend where Meta could continue falling.

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