[Music]

all right so because of popular requests

i'm gonna take a look at facebook's

recent results let's do a deep analysis

into it and what it means for investors

uh at the same time i'll also take a

look at alphabet's recent results and

its decision to do a 20 for one stock

split and again what it means for

investors so let's begin with facebook

now known as meta platforms

and so they just announced their

earnings results yesterday and the

market kind of like freaked out based on

the after hours

price performance so if you want to take

a look at the after hours let's take a

quick look so before the earnings you

can see the stock has been on a very

nice uptrend

and of course it went through a

retracement like all the other tech

stocks

but found support at the 292 dollar

price level over there

so this was a strong level of

support and boom earnings came out and

people freaked out i'm not really people

i would say the

algorithms right remember eighty percent

of buying and selling are not driven by

human beings that make fundamental

decisions get driven by algorithmic

machines okay

and that's why in the short term

remember

the market tends to overreact to bad

news

and overreact to good news

and so stocks get mispriced from the

value of the underlying business because

of that and as investors you have to

learn how to take advantage of that by

understanding what's the true value of

the business and to know when the price

is irrationally cheap or irrationally

expensive so with that let's take a look

at facebook

um now let's take a look at the after

hours price

and you can see the one in gray

is the after hours price so

after hours after results were announced

after the market closed yesterday boom

you had this big rate candle down

we are looking at the five-minute candle

all right and we have been having a

slight recovery

uh in the last couple of minutes so

we'll see how it goes but as of now it

looks like

uh

facebook if it opens according to its

after hours price it may open at

260 dollars per share

so that represents almost a 20

drop

from its closing price yesterday let's

look at the

charts over there so 260 dollars

it looks like it's gonna get down to

this support level over here it's

another strong support

at 253 and another very strong support

at 2 31.

so the question is you know what caused

the market to freak out let's take a

look at the earnings report

so fb reported earnings per share of

3.67

which was below expectation the

expectation from analysts was 3.84 cents

per share

and 367 is 5

below

the same quarter last year

how about revenue now revenue came in at

33.67 billion which is up 20

based on last year's same quarter

and it's higher than expected so revenue

came in slightly higher than expected

which was 33.4

million

all right

uh facebook's daily active users

now

it has been reported in the news that is

the first time their daily active users

have fallen

from the previous quarter all right

uh but

year on year it still grew five percent

uh from 1.93 billion active users to

1.95 billion active users

their monthly uh active users grew by

nine percent year on year

average revenue per user

rose from 11 57 to 11 38

now the other thing that freaked the

market out was that facebook

lowered its forward forecast for 2022

the first quarter right so a lot of

analysts were expecting that for the

first quarter of 2022 they're gonna do

30 billion of revenue for the first

quarter but they said because of some

challenges in competition

uh they expect to do 27 to 29 billion

dollars instead so basically the three

things that are freaking the market out

and causing the 20 drop in the share

price number one

they reported a drop in profit

uh from

the previous quarter so that's one thing

that's freaking people out number two

their forward guidance is lower than

expected so based on this forward

guidance they're expected to grow

revenue at between three to eleven

percent

for this uh first quarter right the

third thing is is the first time their

daily active users have fallen on a

quarter to quarter basis so that is

what's freaking out the market

now as an investor should you get

freaked out

one of the things that i've learned in

investing and in life is don't get over

fixated and don't get overly concerned

with short-term

results all right because you know even

great companies have good quarters

and bad quarters and even good years

and bad years

so

you have to take a look at the bigger

picture how are they performing over a

longer time frame

it's kind of like getting upset that

you're having a pimple and thinking that

because i've got a pimple i'm not a very

ugly person right so again like i said

don't get too

fixated by short term look at the longer

term is the business

competitive advantage in tech is it

still growing

and what are the shares worth

so

let's take a look at the bigger picture

so over here you can see that

year on year

or quarter on quarter right so this is

the last quarter of 2021

again look at revenue revenue went from

28 billion

to 33 billion so that's a 20 growth in

revenue

for the quarter

not bad right now for the entire

financial year

it grew 85 billion

to 117 billion 37

revenue growth

so if a business is growing at 37

is that bad

that's pretty good right 37 revenue

growth okay fine how about profits let's

take a look at profits now

uh profits would be net income

on a quarter to quarter basis

it fell right it fell from 11 billion

to 10 billion so negative eight percent

drop in net profit but that's just one

quarter how about the whole year you

know look at whole year right

and for the year it went up 29 billion

to 39 billion so profits went up 35

year on year

so revenue is up 37 net profit is up 35

but most important is free cash flow

what's the growth or the decline in free

cash flow in the last 12 months

so if you take a look at the numbers you

can see that

for the financial year and the 2020 free

cash flow was 23

billion dollars

and the last 12 months

is 39 billion dollars so if you do the

math this represents an increase in free

cash flow of

65.5 percent so again a company

increasing their free cash flow at 65.5

it's a pretty done good business

so what about the concern about falling

profits why is the profits falling if

the revenue is going up so let's take a

closer look

at where that is coming from now again

uh over here you can see the breakdown

in revenue

from its family of apps so family of

apps would be its

legacy businesses right facebook

instagram messenger and whatsapp these

are its legacy businesses its new

business is developing vr and ar for the

metaverse which is this new business

that's not yet profitable that's called

the reality labs part of their business

so if you take a look at

their revenue

you can see that

it's been growing year on year so they

are family of apps growing at 70 billion

84 billion and 115 billion

so their legacy business

businesses have been growing

all right

they are ar and vr the metaverse

has been growing at 500 million

1 billion and 2 billion so their

metaverse business has been doubling

year

after year for the last three years now

if you look at it from a quarter

quarterly basis same thing you can see

quarterly uh it's been growing

legacy business growing to 32 billion

and it's reality labs business the

metaverse business has also been growing

on a quarter to quarter basis right so

overall revenue you can see has been

growing 26 billion 29 billion 29 billion

uh 33 billion so revenue is growing

right so that's not a concern

profits now

the legacy business profits have been

growing look at their income from their

legacy businesses 14 billion

13 billion so there's a drop for this

quarter then up to 14 14.8 billion went

up again dropped to 13 billion and up to

15.8 billion so again it goes through

upside down but overall the trend

is their legacy businesses are getting

more and more profitable right

but their reality labs is what's losing

more and more money in other words their

new metaverse business right losing a

billion losing 2 billion losing 2.6

billion losing 3 billion

why because again this is a new business

that they are spending more and more

money on and it's not yet profitable it

may take

five years to become profitable so in

the meantime they have to

take that hit

it's the same thing as disney why has

disney's profits been dropping the last

couple of quarters because it's been

investing heavily in disney plus that's

not yet profitable so you kind of like

have to take a short term pain to get a

long-term gain that's what happened to

amazon as well there was a time when

amazon's profits dropped a lot because

they were investing heavily in their

cloud business but once that cloud

business

became profitable it increased the

entire profitability of the entire group

so i'm not too concerned about the drop

in profits for

matter because the drop in profits is

because of its new metaverse business

that it is heavily investing in that

it's not yet born the fruits of the

investments and that will take a couple

of years by the meantime yes profits

may

go down in the short term but if your

long-term investor is something that i

don't think i'm too concerned about now

what's the other concern the other

concern is that their growth is slowing

because people are spending less time on

facebook instagram and people are

spending more time on tick tock and so

and so forth so is that a concern yeah

it could be a concern that their growth

is slowing down

their daily active uses although year on

year is growing but it's growing at a

lower rate so yes their growth is

slowing that is a concern all right

so as an investor the question is after

the shares have fallen in price

is it still a good deal

or is it no longer a good deal so that's

where we have to look at

valuation that's where we have to do a

discounted free cash flow

valuation of the business so what are

fb's shares really worth well it all

depends on your growth assumptions so

again bear in mind that currently

uh fb's revenue

is growing at 37 percent

their net profit net income is growing

at 35 percent yawn year and their free

cash flow

has grown at

65.5 year on year but like i said do we

expect it to continue growing at this

rate no we expect the growth to slow

down because it's getting saturated

there's competition from tick-tock and

snapchat

there's um

the apple privacy changes that's gonna

slow their growth down so we have to

you know

take that into account right okay so

what kind of growth rate do we use now

currently their free cash flow is at 35

billion dollars

they have got zero debt so that's what i

love about this business when a company

has no debt there's no worries right

they've got a 48 billion in cash which

they've been using to buy back shares

so is it good for a company to buy back

shares

yes very good because when a company's

shares are undervalued and the company

buys back shares that reduces the number

of shares in circulation so with less

shares that means each share is worth

more and more so simply by fb buying

back shares it increases the intrinsic

value per share

anyway so that aside what growth rate

should we use

so as you can see on my valuation

calculator i've got three growth rates

for the first five years

for the next five years

right this year one to year five

years six to ten and the last 10 years

right so what growth rates do i use now

again

um

we're not going to use these growth

rates we're going to slow it down right

and if you take a look at the various

websites they have

growth projections

so for example on finvis they are

projecting a 21 percent growth

zack's 19 percent growth

simply wall street 11 growth and capital

iq 18 growth so different websites have

different analysts

consensus they've got different

projections

so if you take an average of all the

analyst consensus you get

a growth rate of 17.8

for the next five years so if i put that

into my calculator 17.81

right and i then assume that the next

five years the growth will slow down

even further by half because it slows

down right to 8.9 percent

and for the last 10 years i assume that

fb is only going to grow at 4

which is the gdp growth rate of the u.s

economy

plus one percent right

so based on this assumption

fb shares are worth 403

dollars

and as of yesterday's after hours price

of 250

fb is now at a 38

discount to valuation

now

what if we get even more pessimistic and

we are saying hey i don't think they can

even do 17

so let's take let's take the lowest

uh projection

which is 11.7

on simply wall street so that's

really really low i mean think about it

they are now growing at 65

and you're saying that from 65 they're

gonna slow down to 11

yeah it's possible all right so let's

put that in right as a valuer as an uh

analyst you have to always have you know

the worst case scenarios right so let's

put in eleven point seven percent

as our growth assumption

and let's assume that after five years

that will half to five point eight five

percent and then slow down to four

percent

so with this assumption the intrinsic

value

becomes 293 dollars

which means at the share price after

hours of 250 is still selling at a 14 or

rather 15 discount so when you value a

stock it's never one number it's always

a range because there's always

a difference in your expectations the

growth estimate so the range

of fb i would say

pessimistically

worth 293

to

expected worth about 400 bucks

so

if this is the range of the valuation

and right now fb selling at 250

is it a good deal

it's not a bad deal right so you're

buying it

under value and when you buy a great

business under value you can't really go

wrong

now not to say that the share price

can't keep going down in the short term

it could still go lower because in the

short term prices are driven by emotions

and and manipulation

may still go down in a short term but

over time

you will make money because you're

buying something and less than what it's

really worth all right now finally

before i make a decision i like to look

at the charts

to look at technical patterns

so if you look at the charts of fb

again i mentioned this earlier

you can see there's a support level at

291 another support here

at 253 and a final support level here at

231 so if the price opens today

at about 260

it's at a reasonable level to add shares

okay

now if it breaks this level then the

next level of support will be 231.

so when should you start buying it

really depends on how many shares you

already have

or whether you have any chance at all

okay i already have fb shares i've been

holding fb for many many years my cost

is very very low

and i already have

a pretty big position so to me i've got

about

uh 4.5

position in fb so a 4.5 position 4.5

position to me

is almost a full position right so for

me i'll only add

if it gets to

230 dollars

which is the last support level all

right so that's my analysis of fb moving

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markets be with you