Buy Meta Now Before Everyone Else Does (NASDAQ:FB)

What a year it’s been!

Thanks to rising interest rates and now the Russian Invasion of Ukraine, volatility this year has been extreme, to say the least.

Many former Wall Street darlings have fallen by 20% to 45%…in a single day.

On January 24th the Nasdaq fell 5% in 3 hours…and then rallied 6% to close the day up 1%. That was the biggest intra-day turnaround in seven years.

That is until the February 24th 6.5% intra-day swing in which the Nasdaq went from -3.5% to +3% within hours.

• on an apparent “sell the rumor of invasion and buy the news of invasion” shift in sentiment

And of course, Meta (FB) investors have been pummelled with the worst bear market in this company’s history.

In fact, during the initial February 24th Russian Invasion crash, when the Nasdaq fell almost 3.5% (and was in a bear market) FB hit $190.22, or 51% off its record highs.

This likely means either that Meta, which hit a record low PE of 15 recently, is a value trap to ignore, or a Buffett-style “fat pitch” that’s set to soar.

Here are the three reasons why I believe it’s time to be greedy on Meta, and why I bought more at under $191 on the day the market briefly melted down over the Russian Invasion.

Reason One: Meta Is Still A World-Class Company

The Dividend King’s overall quality scores are based on a 237 point model that includes:

• dividend safety

• balance sheet strength

• credit ratings

• credit default swap medium-term bankruptcy risk data

• short and long-term bankruptcy risk

• accounting and corporate fraud risk

• profitability and business model

• growth consensus estimates

• historical earnings growth rates

• historical cash flow growth rates

• historical dividend growth rates

• historical sales growth rates

• cost of capital

• long-term risk-management scores from MSCI, Morningstar, FactSet, S&P, Reuters’/Refinitiv and Just Capital

• management quality

• dividend friendly corporate culture/income dependability

• long-term total returns (a Ben Graham sign of quality)

• analyst consensus long-term return potential

It actually includes over 1,000 metrics if you count everything factored in by 12 rating agencies we use to assess fundamental risk.

How do we know that our safety and quality model works well?

During the two worst recessions in 75 years, our safety model predicted 87% of blue-chip dividend cuts during the ultimate baptism by fire for any dividend safety model.

How does FB score on one of the world’s most comprehensive safety models?

FB Balance Sheet Safety

Rating	Dividend Kings Safety Score (147 Point Safety Model)	Approximate Dividend Cut Risk (Average Recession)	Approximate Dividend Cut Risk In Pandemic Level Recession
1 – unsafe	0% to 20%	over 4%	16+%
2- below average	21% to 40%	over 2%	8% to 16%
3 – average	41% to 60%	2%	4% to 8%
4 – safe	61% to 80%	1%	2% to 4%
5- very safe	81% to 100%	0.5%	1% to 2%
FB	100%	NA	NA
Risk Rating	Medium-Risk (36th industry percentile consensus)	Effective AAA credit rating 0.07% 30-year bankruptcy risk	20% OR LESS Max Risk Cap Recommendation

Long-Term Dependability

Company	DK Long-Term Dependability Score	Interpretation	Points
Non-Dependable Companies	21% or below	Poor Dependability	1
Low Dependability Companies	22% to 60%	Below-Average Dependability	2
S&P 500/Industry Average	61% (58% to 70% range)	Average Dependability	3
Above-Average	71% to 80%	Very Dependable	4
Very Good	81% or higher	Exceptional Dependability	5
FB	70%	Average Dependability	3

Overall Quality

FB	Final Score	Rating
Safety	100%	5/5 very safe
Business Model	100%	3/3 wide moat
Dependability	70%	3/5 average
Total	85%	11/13 SWAN
Risk Rating	2/3 Medium Risk
10% OR LESS Max Risk Cap Rec	15% Margin of Safety For A Potentially Good Buy

FB: The 105 Highest Quality Master List Company (Out of 509) = 79th Percentile

The DK 500 Master List includes the world’s highest quality companies including:

• All dividend champions

• All dividend aristocrats

• All dividend kings

• All global aristocrats (such as BTI, ENB, and NVS)

• All 13/13 Ultra Swans (as close to perfect quality as exists on Wall Street)

• 47 of the world’s best growth stocks (on its way to 50)

FB’s 85% quality score means its similar in quality to such blue-chips as

• Medtronic (MDT) – dividend aristocrat
• British American Tobacco (BTI) – global aristocrat
• Abbott Labs (ABT) – dividend king
• Enterprise Products Partners (uses K-1 tax form) (EPD)
• Air Products & Chemicals (APD) – dividend aristocrat
• Walmart (WMT) – dividend aristocrat

Even among the most elite companies on earth, FB is higher quality than 79% of them.

• even with the risk profile elevated and growth outlook reduced

Why am I still confident in Meta’s business?

FB is the world’s #1 social media platform with about 3 billion monthly users.

We assign Meta a wide moat rating based on network effects around its massive user base and intangible assets consisting of a vast collection of data that users have shared on its various sites and apps….

Today, we see that Facebook, Instagram, Messenger, and the different features and apps surrounding them have increased user engagement on various devices.

Facebook also is slowly becoming an entertainment hub, which helps increase engagement and user time spent on Facebook. Additional apps created by developers on the Meta platform also help maintain users within the ecosystem. According to eMarketer, on average, users are on Facebook and Instagram a combined 65 minutes per day per day posting videos and photos, exchanging messages, making comments, uploading content, liking or disliking other content, and more. This demonstrates the value of the platform to users and its network effect for the firm.

Outside of network effects, Meta has developed additional intangible assets. Unlike any other online platform in the world, Facebook has accumulated data about everyone with a Facebook and/or an Instagram account.

Facebook has its users’ demographic information. It knows what and who they like and dislike.

It knows what topics and/or news events are of interest to them. In addition, without the need for cookies enabled on desktop or mobile browsers, and based on the Facebook Login, the firm knows its users’ browsing history on many non-Facebook sites or apps. With access to such data and to billions of photos and videos uploaded by its users, Facebook continues to enhance the social network by offering even more relevant content to its users. This virtuous cycle further increases the value of its data asset, which only Meta and its advertising partners can monetize.” – Morningstar

This isn’t to say that FB doesn’t have its fair share of risks (see risk section).

• user growth in certain markets has turned negative for the first time (the reverse network effects Morgan Housel warns about)
• Apple’s new privacy policy puts advertising effectiveness at risk
• Europe has told FB it won’t be able to export user data outside of Europe
• the EU is approximately 25% of sales
• TikTok is the fastest growing social media network in history and represents the kind of disruption risk that all social media companies face

FB will either have to leave Europe (and lose 25% of its sales) or recreate its data centers and AI learning centers on that continent (an expensive proposition).

With Apple’s iOS changes and new regulations in Europe, there’s a clear trend where less data is available to deliver personalized ads. But people still want to see relevant ads, and businesses still want to reach the right customers. So we’re rebuilding a lot of our ads infrastructure so we can continue to grow and deliver high-quality personalized ads.

Now I’m confident that leaning harder into these trends is the right short-term tradeoff to make in order to get long-term gains. We’ve made these types of transitions before with mobile feed and Stories, where we took on headwinds in the near-term to align with important trends over the long-term…

And while video has historically been slower to monetize, we believe that over time short-form video is going to monetize more like feed or Stories than like Watch. So I’m optimistic that we’ll get to where we need to be with Reels, too.

Ultimately, our continued success relies on building new products that people find valuable and enjoy using.” – Mark Zuckerberg (Q4 conference call)

However, FB has a lot of financial firepower to overcome its current challenges, and it looks like its looking to spend whatever it takes on data center infrastructure.

I want to discuss our investment priorities for 2022. The first one is Reels. It’s clear that short-form video will be an increasing part of how people consume content moving forward, and Reels is now our fastest-growing content format by far. It’s already the biggest contributor to engagement growth on Instagram and it’s growing very quickly on Facebook, too…

Now onto AI, this is one of the areas where we’ve routinely seen stronger returns on our investments over time than we’ve expected. Advances in AI enable a lot of the experiences that I’ve talked about so far, it enables us to deliver better ads to people while using less data; it’s core to our safety and security work; it’s meaningfully improved the relevance of Reels and overall content ranking in general; and it plays a big role in our commerce efforts.

Artificial intelligence is also going to play a big role in our work to help build the metaverse. We just announced our AI Research SuperCluster, which we think will be the world’s fastest supercomputer once it is complete later this year. This is going to enable new AI models that can learn from trillions of examples and understand hundreds of languages which will be key for the kinds of experiences that we’re building.

Looking ahead, we’re focused on further scaling our computing power and transforming our AI infrastructure through advances in foundational research, as well as improvements to data center design, networking, storage, and software.” – Mark Zuckerberg

Reels was just rolled out across 150 countries.

The extra $10 billion in annual capex spending is focused on scaling FB’s supercomputing capacity so it can maximize AI-driven improvements in personalizing ads.

• while adapting to new privacy rules and regulations from Apple and the EU

An Effective AAA Balance Sheet

• zero debt
• $48 billion in cash
• $27.2 billion in 2022 consensus free cash flow
• F-score (advanced accounting metric measuring short-term bankruptcy risk) 7 vs 4+ safe, 7+ very safe
• Z-score (84% effective at predicting long-term bankruptcies) 10.8 vs 3+ very safe
• M-score (73% effective at predicting accounting fraud, 82.5% effective at finding companies with honest accounting) -2.85 vs -1.78 or less safe (significantly less than 17.5% risk of accounting fraud)

Microsoft (AAA Rated)

JNJ (AAA Rated)

If FB chose to pay for a credit rating I’m confident it would be AAA.

• 0.07% 30-year bankruptcy risk
• 1 in 1,429 chance of losing all your money in the next three decades

Credit Rating	Safe Net Debt/EBITDA For Most Companies	30-Year Default/Bankruptcy Risk
BBB	3.0 or less	7.50%
A-	2.5 or less	2.50%
A	2.0 or less	0.66%
A+	1.8 or less	0.60%
AA	1.5 or less	0.51%
AAA	1.1 or less	0.07%

(Sources: S&P, Fitch, Moody’s)

Just take a look at FB’s leverage ratios.

FB Leverage Consensus Forecast

Year	Net Debt/EBITDA (3.0 Or Less Safe According To Credit Rating Agencies)
2021	-0.75
2022	-1.00
2023	-1.18
2024	-1.17
2025	-0.66
2026	-0.63
2027	-0.62
Annualized Change	-3.07%

(Source: FactSet Research Terminal)

And its balance sheet which is getting steadily stronger over time.

FB Balance Sheet Consensus Forecast

Year	Cash	EBITDA (Millions)	Operating Income (Millions)
2021	$16,601	$63,882	$46,753
2022	$24,970	$61,364	$42,419
2023	$33,241	$70,433	$49,804
2024	$62,703	$80,627	$56,476
2025	$99,069	$91,872	$64,034
2026	$135,957	$107,906	$73,306
2027	$179,292	$122,623	$82,621
Annualized Growth	48.67%	11.48%	9.95%

(Source: FactSet Research Terminal)

FB certainly has its growth challenges, but analysts expect it to keep growing at double-digits and build up one of the largest cash piles on earth.

• maximum financial flexibility to pivot to wherever the future of its industry is going

Profitability: Wall Street’s Favorite Quality Proxy

FB’s historical profitability is incredible.

FB Trailing 12-Month Profitability Vs Peers

Metric	Industry Percentile	Major Interactive Media Companies More Profitable Than FB (Out Of 607)
Operating Margin	92.89	43
Net Margin	89.36	65
Return On Equity	88.87	68
Return On Assets	92.09	48
Return On Capital	65.42	210
Average	85.73	87

(Source: Gurufocus Premium)

Despite its many challenges in the last year profitability was still better than all by 87 media companies on earth.

FB’s profitability has been relatively stable or improving for the last decade.

• free cash flow margins in the top 10% of all global companies

FB Profit Margin Consensus Forecast

Year	FCF Margin	EBITDA Margin	EBIT (Operating) Margin	Net Margin	Return On Capital Expansion	Return On Capital Forecast
2021	32.6%	54.2%	39.6%	33.4%	0.85
2022	20.4%	45.9%	31.8%	26.7%	TTM ROC	74.46%
2023	22.5%	45.2%	32.0%	26.7%	Latest ROC	74.37%
2024	22.3%	45.7%	32.0%	26.6%	2027 ROC	63.24%
2025	23.6%	45.5%	31.7%	26.3%	2027 ROC	63.16%
2026	31.8%	48.2%	32.7%	26.9%	Average	63.20%
2027	33.3%	50.0%	33.7%	27.1%	Industry Median	16.96%
Annualized Growth	0.34%	-1.33%	-2.69%	-3.41%	FB/Peers	3.73
					Vs S&P	4.33

(Source: FactSet Research Terminal)

FB’s margins are expected to compress a bit from 2021’s record levels but generally remain stable over time.

Return on capital, Joel Greenblatt’s gold standard proxy for quality and moatiness is expected to remain stable at about 4X the industry and S&P norm.

According to one of the greatest investors in history, FB is about 4X higher quality than the average S&P or social media company.

FB Growth Spending Consensus Forecast

(Source: FactSet Research Terminal)

FB’s growth spending is expected to go from $67 billion in 2021 to $140 billion in 2027.

• 30% cash returns on invested capital

R&D spending in 2027 is expected to be $13 billion more than the largest R&D company on earth in 2021 (Amazon at $42 billion).

The largest increase in growth spending is in 2022, thanks to an expected $10 billion increase in capex.

Does this sound like a company that’s out of ideas on how to innovate?

Reason Two: Growth Outlook Is Still Strong

Morningstar is slightly above-average in bullishness on FB, expecting 16% long-term growth compared to a 12.4% median forecast from all 54 analysts who cover it.

However, analysts generally agree with Morningstar that FB is still going to grow its users base over time, just more slowly.

And increased monetization through machine learning algorithm analysis of its user data is expected to steadily generate higher average revenue per user or ARPU.

• in the last 12-months, ARPU worldwide went up 14%
• analysts expect 7.4% CAGR ARPU growth from 2021 through 2024

Currently, Meta’s $10+ billion annual spending on the metaverse (40% of R&D spending) isn’t being factored into any potential future growth.

• at least not for the consensus,
• some analysts think FB will be able to grow at 21.4% CAGR over time because the metaverse will succeed

(Source: FAST Graphs, FactSet Research)

According to the 56 analysts that collectively know FB better than anyone other than management, FB’s free cash flow is going to keep growing like a weed through at least 2027.

FB Medium-Term Growth Consensus Forecast

Year	Sales	FCF	EBITDA	EBIT (Operating Income)	Net Income
2021	$117,929	$38,440	$63,882	$46,753	$39,370
2022	$133,568	$27,213	$61,364	$42,419	$35,624
2023	$155,796	$35,124	$70,433	$49,804	$41,555
2024	$176,331	$39,324	$80,627	$56,476	$46,904
2025	$201,979	$47,768	$91,872	$64,034	$53,119
2026	$223,960	$71,255	$107,906	$73,306	$60,223
2027	$245,373	$81,616	$122,623	$82,621	$66,520
Annualized Growth	12.99%	13.37%	9.51%	9.95%	9.14%

(Source: FactSet Research Terminal)

FB’s sales are expected to hit almost $250 billion by 2027 and its free cash flows $82 billion.

Analysts expect 70% of that FCF to go towards buybacks.

FB Buyback Potential Consensus Forecast

Year	Dividend Consensus	FCF/Share Consensus	Payout Ratio	Retained (Post-Dividend) Cash Flow	Buyback Potential
2021	$0.00	$13.50	0.0%	$37,557	6.83%
2022	$0.00	$8.87	0.0%	$24,676	4.49%
2023	$0.00	$12.59	0.0%	$35,025	6.37%
2024	$0.00	$17.64	0.0%	$49,074	8.92%
2025	$0.00	$21.18	0.0%	$58,923	10.71%
2026	$0.00	$26.35	0.0%	$73,306	13.33%
2027	$0.00	$30.30	0.0%	$84,295	15.32%
Total 2021 Through 2027	$0.00	$130.43	0.0%	$362,856.26	65.97%
Annualized Rate	NA	14.42%	NA	14.42%	14.42%

(Source: FactSet Research Terminal)

If it wanted to analysts believe that FB’s $363 billion in retained free cash flow could buy back 66% of shares by 2027 at current valuations.

Year	Consensus Buybacks ($ Millions)	% Of Shares (At Current Valuations)	Market Cap
2021	$44,537.0	8.1%	$550,050
2022	$22,066.0	4.0%	$550,050
2023	$25,960.0	4.7%	$550,050
2024	$32,954.0	6.0%	$550,050
2025	$39,229.0	7.1%	$550,050
2026	$49,878.0	9.1%	$550,050
2027	$57,131.0	10.4%	$550,050
Total 2021 Through 2027	$271,755.00	49.4%	$550,050
Annualized Rate	9.17%	Average Annual Buybacks	$45,292.50

(Source: FactSet Research Terminal)

Analysts expect FB to buy back an average of $45 billion per share of stock through 2027, at current valuations, or 9% of shares each year.

FB began buying back stock in 2018 and since then has repurchased 6.3% of net shares (factoring in stock-based compensation).

By 2027 analysts expect $57 billion in share buybacks representing 70% of the company’s $82 billion in free cash flow (which will still be growing at 15% according to analysts).

What about the long-term outlook?

FB Long-Term Growth Outlook

• 12.4% to 21.4% growth consensus range
• the median consensus among 56 analysts that cover it is 12.4%
• smoothing for outliers historical margins-of-error are 15% to the downside and 20% to the upside
• 10% to 26% CAGR historical margin-of-error growth consensus range

FB’s future growth is expected to be a lot slower, though some analysts believe they can grow as fast as 26%, similar to the growth rates of the last four years.

• a thesis likely predicated on the success of the $100+ billion in metaverse investments the company plans to make over the next decade

But the biggest reason I’m so bullish on Meta and own it as 2% of my entire net worth, is the valuation.

Reason Three: A Wonderful Company At A Wonderful Price

FB’s historical fair value PE range is 25 to 35 depending on the growth rate.

• at 14% growth, FB’s historical fair value PE is about 25X.

Metric	Historical Fair Value Multiples (6-Years)	2021	2022	2023	2024	2025	12-Month Forward Fair Value
Earnings	25.18	$346.73	$318.28	$373.92	$423.28	$480.94
Average		$346.73	$318.28	$373.92	$423.28	$480.94	$326.84
Current Price	$205.26
Discount To Fair Value		40.80%	35.51%	45.11%	51.51%	57.32%	37.20%
Upside To Fair Value		68.92%	55.06%	82.17%	106.21%	134.31%	59.23%
2022 EPS	2023 EPS	2022 Weighted EPS	2023 Weighted EPS	12-Month Forward EPS	12-Month Average Fair Value Forward PE	Current Forward PE
$12.64	$14.85	$10.70	$2.28	$12.98	25.2	15.8

Meta might be up 6% off its recent lows but its still trading at less than 16X earnings.

And backing out net cash? It’s trading at 8.9X EV/EBITDA!

For context, pre-pandemic private equity deals were closing at 12.3 EV/EBITDA.

In 2021 they were closing at 13 to 14X.

Today you can buy Meta, the world’s most dominant social media company, at valuations so low that it makes Private Equity look expensive!

In fact, if FB were to grow as expected over the next year and return to fair value it could deliver 59% total returns.

And guess what? That’s exactly what analysts expect will happen.

Analyst Median 12-Month Price Target	Morningstar Fair Value Estimate
$330.14 (25.4 PE)	$400.00 (30.8 PE)
Discount To Price Target (Not A Fair Value Estimate)	Discount To Fair Value
37.83%	48.69%
Upside To Price Target	Upside To Fair Value
60.84%	94.87%

That 61% consensus 12-month forecast is 100% justified by FB’s exceptionally attractive valuation and fundamentals.

Rating	Margin Of Safety For Medium-Risk 11/13 SWAN Quality Companies	2022 Price	2023 Price	12-Month Forward Fair Value
Potentially Reasonable Buy	0%	$318.28	$373.92	$326.84
Potentially Good Buy	15%	$270.53	$317.83	$277.81
Potentially Strong Buy	25%	$238.71	$280.44	$245.13
Potentially Very Strong Buy	35%	$175.85	$243.05	$212.44
Potentially Ultra-Value Buy	45%	$175.05	$205.66	$179.76
Currently	$204.65	36.51%	45.96%	37.2%
Upside To Fair Value (Not Including Dividends)		57.50%	85.04%	59.23%

For anyone comfortable with its risk profile, Meta is a potentially very strong buy.

Consensus Return Potential That Will Knock Your Socks Off

For context, here’s the return potential of the 14% overvalued S&P 500.

(Source: DK S&P 500 Valuation And Total Return Tool) updated weekly

Stocks have already priced in almost all of the 100% EPS growth from 2020 through 2024 and are trading at 19.6X forward earnings.

• 16.84 is the 25-year average
• 11.4% correction needed to get back to historical market fair value

S&P 500 2023 Consensus Return Potential

Analysts expect the S&P 500 to deliver potentially -5% total returns over the next two years.

Year	Upside Potential By End of That Year	Consensus CAGR Return Potential By End of That Year	Probability-Weighted Return (Annualized)	Inflation And Risk-Adjusted Expected Returns
2027	39.82%	6.93%	5.20%	2.36%

(Source: DK S&P 500 Valuation And Total Return Tool) updated weekly

Adjusted for inflation, the risk-expected returns of the S&P 500 are about 2.5% for the next five years.

• S&P’s historical inflation-adjusted returns are 6% to 7% CAGR

S&P Earnings Yield	10-Year US Treasury Yield	Earning Yield Risk-Premium (3.7% 10 and 20-year average)
5.24%	1.97%	3.27%
Theoretical Interest Rate Justified Market Fair Value Forward PE	Current PE	Theoretically Interest Rate Justified Market Decline
17.64	19.10	7.63%

(Source: DK S&P 500 Valuation And Total Return Tool) updated weekly

Even adjusting for low (and rising) interest rates, stocks still require an 8% correction before they become theoretically fairly valued.

But here’s what investors buying FB today can reasonably expect (10% to 26% growth and 25 to 35 PE)

• 5-year consensus return potential range: 19% to 27% CAGR

FB 2023 Consensus Total Return Potential

If FB grows as expected and returns to historical fair value by 2023 that’s potentially 80% total returns or 37% annually.

FB 2027 Consensus Total Return Potential

If FB grows as expected and returns to historical mid-range fair value

• then 180% total returns or 19% CAGR
• about 4.5X more than the S&P 500 consensus

Historical Returns Since 2013

If FB can regain its historical growth rates, as some analysts believe it can (up to 26% long-term growth), its best bear market rallies, 37% annual returns over 7 years, could be replicated for investors buying FB at the best valuation in history.

• 37% CAGR for 7 years = 9X return

How good of a potential growth investment is Meta right now?

FB Investment Decision Score

For anyone comfortable with its risk profile, FB is as close to a perfect growth blue-chip as you can buy in today’s overvalued market

• 38% discount vs 14% premium
• 3X the risk-adjusted expected returns of the S&P 500

Risk Profile: Why Meta Isn’t Right For Everyone

There are no risk-free companies and no company is right for everyone. You have to be comfortable with the fundamental risk profile.

FB’s Risk Profile Summary

We believe that while barriers to exit for the nearly 3 billion users may be increasing, the risk of another disruptive and innovative technology, more recently TikTok, coming onto the scene and luring users away from Meta and its apps remains. We do not expect competition in the form of a substitute for Meta, as most consumers are users of more than one social network. However, given the fixed number of hours per day, an increase usage and engagement on one social network could come at a cost to other social networks, reducing user engagement and the potential return on investment for advertisers. Furthermore, even with Meta’s dominant position in the social network market, its high dependence on continuing growth of online advertising could heighten the negative impact of a lengthy downturn in online ad spending, resulting in a much lower fair value estimate.

The firm’s high dependence on user behavior data also represents an ESG risk. The risk remains that limitations could be imposed by regulatory agencies around the world on what user and usage data Meta can compile and how the data can be utilized. Lack of data privacy and security plus data misusage could impact users on the social platform negatively.

Meta’s additional ESG risks are part of the firm’s business ethics and product governance. On the business ethics front, questions regarding data usage and content management, and whether Meta has double-standards, still remain and may resurface. This issue will also create uncertainty regarding the firm’s product and feature offerings to users and advertisers.

Lastly, some governments may simply forbid access to Meta’s apps, which could result in lower user growth and user interaction. Similar to Alphabet, Meta also faces limitations on the M&A front as the U.S. and other countries attempt to lessen the firm’s dominance in advertising and the overall Internet market.- Morningstar (emphasis added)

FB’s Risk Profile Includes

• disruption risk: from new platforms like TikTok
• business model disruption risk: from major changes on phone platforms like iOS
• regulatory/political risk: EU data limitation is just the most recent example
• capital allocation risk: $100+ billion in metaverse spending could amount to nothing
• legal liability risk: big tech is constantly being sued by states and other companies
• M&A execution risk: primarily a lack of future M&A ability due to anti-trust concerns
• labor retention risk (tightest job market in over 50 years and finance is a high paying industry) – tech is a high paying industry
• currency risk
• governance risk: Zuckerberg controls the voting rights so FB investors have to ride or die with his decisions

FB lost $3.3 billion on its metaverse investments in Q4 alone.

$13.2 billion annualized = $132 billion potential loss over a decade assuming it doesn’t increase metaverse spending.

• no company in history has ever made such unidirectional R&D bet as FB is making today with the metaverse

And for the first time ever daily active users actually fell (by 1 million).

Analysts expect slow but positive growth in users in the next few years.

If FB can’t deliver then its modest growth expectations could fall to single digits.

What Would Break/Weaken The Thesis On FB

• Fundamental safety falls to 40% or less (unsafe) – would require FB’s network effects to go into reverse, and large profits to become losses (highly unlikely)
• growth consensus falls to less than 10% CAGR for 5 years
• if growth consensus fell to less than 10% CAGR for 5 years then I’d consider selling my shares
• FB role in any portfolio is to generate rapidly growing income and 10+% CAGR long-term total returns with minimal fundamental risk
• High-yield defensive sectors like midstream, utilities, REITs, healthcare, consumer staples, etc, have 8+% total return requirements
• non-defensive sectors have 10+% return requirements to stay on the Phoenix list (and in my portfolio)

How long it takes for a company’s investment thesis to break depends on the quality of the company.

Quality	Years For The Thesis To Break Permanently
Below-Average	1
Average	2
Above-Average	3
Blue-Chip	4
SWAN	5
Super SWAN	6
Ultra SWAN	7
Perfect 100% Quality – only MA at the moment	8

How do we quantify, monitor, and track such a complex risk profile? By doing what big institutions do.

Material Financial ESG Risk Analysis: How Large Institutions Measure Total Risk

Here is a special report that outlines the most important aspects of understanding long-term ESG financial risks for your investments.

• ESG is NOT “political or personal ethics based investing”
• it’s total long-term risk management analysis

ESG is just normal risk by another name.” Simon MacMahon, head of ESG and corporate governance research, Sustainalytics” – Morningstar

ESG factors are taken into consideration, alongside all other credit factors, when we consider they are relevant to and have or may have a material influence on creditworthiness.” – S&P

ESG is a measure of risk, not of ethics, political correctness, or personal opinion.

S&P, Fitch, Moody’s, DBRS (Canadian rating agency), AMBest (insurance rating agency), R&I Credit Rating (Japanese rating agency), and the Japan Credit Rating Agency have been using ESG models in their credit ratings for decades.

• credit and risk management ratings make up 41% of the DK safety and quality model
• dividend/balance sheet/risk ratings make up 82% of the DK safety and quality model

Dividend Aristocrats: 67th Industry Percentile On Risk Management (Above-Average, Medium Risk)

FB Long-Term Risk Management Consensus

Rating Agency	Industry Percentile	Rating Agency Classification
MSCI 37 Metric Model	24.0%	B Industry Laggard
Morningstar/Sustainalytics 20 Metric Model	0.7%	32.4/100 High-Risk
Reuters’/Refinitiv 500+ Metric Model	89.1%	Good
S&P 1,000+ Metric Model	18.0%	Very Poor (Stable Trend)
Just Capital 19 Metric Model	50.00%	Average
Consensus	36.4%	Below-Average
FactSet Qualitative Assessment	Below Average	Positive Trend

(Sources: MSCI, Morningstar, Reuters’, S&P, FactSet Research)

FB’s Long-Term Risk Management Is The 457 Best In The Master List (9th Percentile)

FB’s risk-management consensus is in the bottom 9% of the world’s highest quality companies and similar to that of such other companies as

• Berkshire Hathaway (BRK.B)
• MDU Resources (MDU) – dividend champion
• H.B Fuller (FUL) – dividend king
• National Fuel Gas (NFG) – dividend king
• Medical Properties Trust (MPW)

The bottom line is that all companies have risks, and FB is below-average at managing theirs.

So take this into account when sizing your positions.

• I’m 2% invested in FB and am targeting 1% of future savings in market downturns

How We Monitor FB’s Risk Profile

• 56 analysts
• 6 total risk rating agencies
• 62 experts who collectively know this business better than anyone other than management

When the facts change, I change my mind. What do you do sir?” – John Maynard Keynes

There are no sacred cows at iREIT or Dividend Kings. Wherever the fundamentals lead we always follow. That’s the essence of disciplined financial science, the math retiring rich and staying rich in retirement.

Bottom Line: It’s The Best Time In History To Be Greedy On Meta

• FB is priced as if its wide moat is gone and its days of hyper-growth are permanently behind it
• 10% to 26% growth is likely in the future
• 12.4% median consensus
• 37% discount to fair value = potentially very strong buy
• classic Buffett-style “wonderful company at a wonderful price”
• 180% consensus total return upside over the next five years = 4.5X the S&P consensus
• 14.4% CAGR 5-year risk-adjusted expected return is 3X that of the S&P 500

If you’re comfortable with FB’s risk profile, there has literally never been a better time (other than right after Russia invaded Ukraine) to open or add to a position in Meta within a diversified and prudently risk-managed portfolio.

This is why I just bought more Meta and you might want to do the same.

Because after a careful analysis of FB’s fundamentals, risks, valuation, and return potential, I come to one simple conclusion.

Buy Meta now before everyone else does.