Sirwin
Sirwin

Meta Posted a Fantastic Balance Sheet, So Why Did Its Stock Crash?


Meta's balance sheet arrived yesterday. An outstanding balance sheet, but the stock still went down 15%. However, the day before, Tesla had reported a very bad balance sheet. Apart from maintaining the gross profit margin, there were significant decreases in all items compared to 2023. But Tesla's stock had gone up 10%. How do these things happen? Why did Meta crash yesterday? Why was Testa elevated? What Wall Street is trying to do and how you can benefit from such an environment, and perhaps most importantly, what Meta CEO Mark Zuckerberg said yesterday and its relationship with Nvidia, I will try to explain all of these today.

Let's take a quick look at Meta's balance sheet first. While the increase in turnover was 28 billion 645 in 2023, it is 36 billion 455 in this quarter. In other words, the growth in the same quarter from year to year is 27%. Meta is already a giant company, it continues to grow like a giant. When we look at the expenses, in 2023 the expenses are 21,418, this year they are 22,637, there is only a 6% increase in expenses. This shows tremendous leverage. The company increases its turnover, but its expenses do not increase that much. As a result, the profit from operations increased from 7 billion 27 to 13 billion 818, an increase of 91%. So it's really not possible for a balance sheet to be better. Core operating profitability increased from 25% to 38%. When you deduct the taxes, they are more advantageous in the tax rate. By the way, last year they paid 22% tax, this year it is 13%. Net profit, the bottom profit, increased from 5 billion 709 to 12 billion 369. It means an increase of 117% and an increase in earnings per share from $2.20 to $4.71, a 114% increase. Whatever Tesla's balance sheet is, this is the exact opposite, it is extraordinary.

I don't like Mark Zuckerberg. I don't like the work Meta does either, but it is impossible not to appreciate this balance sheet. On the other hand, the stock fell by nearly 10% after the closing when the balance sheet came out. Later, when the company's CEO, Mark Zuckerberg, spoke, it dropped another 5 points. There are some other interesting indicators as well. There is a 7% increase in the number of people using the Meta family's applications from year to year. 3.24 billion people currently use Meta applications such as Instagram, Facebook, WhatsApp. There is a 20% increase in ad impressions. There is a 6% increase in the price of each ad from year to year and they also bought back the stock. They repurchased $14.64 billion worth of stock and also paid dividends for the first time. They also distributed $1.27 billion in dividends.

The company has $58.12 billion in cash or convertible assets. Their free cash flow in this quarter is 12.53 billion dollars, and they are actually increasing their productivity. They did business with 10% less personnel compared to last year. What else can a balance sheet tell us? How can a more extraordinary balance sheet come? But Wall Street downgraded the stock anyway. There are two reasons. One of them said that we see our turnover expectation in the second quarter as somewhere between 36.5 and 39 billion dollars. Let's roughly say the midpoint of this is 37.5 billion. It was 1.5% below Wall Street expectations. That is 500 million dollars. However, you will appreciate that 500 million dollars is not very important among this huge number. That's why the stock got a little cranky, but it wouldn't fall hard because of it.

They said that the main fall expenses will be higher than expected, and while they previously said that we will have total expenses between 94 and 99 billion dollars in 2024, they now say that it will be between 96 and 99 billion dollars. So they said there could be an extra expense of $2 billion. One of the reasons for this is that Reality Labs, the department where they develop these metaverse products, will increase their losses because they are trying to develop new products. You know, they are developing great glasses and so on, and at the same time, our legal costs are increasing. Because there are many lawsuits against us in Europe and America. There is a lot of pressure on these big technology companies right now. Maybe Wall Street would actually welcome this, too. There is only a 2 billion dollar play. That, too, is a possibility, but where all hell broke loose was the investment side. They said we will continue investments. We had previously predicted investments of between 30 and 37 billion dollars this year. We are increasing this to 35 - 40 billion.

Then Mark Zuckerberg came out and said that if we want to get results from artificial intelligence, we need to continue investing money. Lama 3 is coming out later this year. This is Meta's own AI big language program, and Zuckerberg claims that Lama 3 is superior to every other AI model on the market. But we need to invest more in order to make money from this and to make it add value to people. That's why we are expanding our investment. When you look at the basics of investment, it is actually Nvidia microchips. From here on, the stock dropped another 5 points and thus, after the balance sheet, the stock fell by 15%. So what does all this mean? Is the commodity really a bad stock? Can meta be invested? What am I thinking? Why do I believe Wall Street is bullshitting? Now let me tell you all this.

I've been reading great praise about Meta's artificial intelligence platform called Lama 3. Many people consider it superior to Chat GPT. Also, what they have done on the metaverse side is very, very positive. Sales of Apple's Metaverse glasses are not going as expected right now. On the other hand, sales of both virtual reality and augmented reality glasses of Metaverse are good. Users are also extremely satisfied. So, we have a very successful company in two new areas. I wholeheartedly believe that Meta will be a huge player in artificial intelligence. Because they have incredibly high data about consumers. This data is invaluable in training artificial intelligence. So, I think Meta will be one of the winners of artificial intelligence in the future. At the helm is a founding CEO with a technology background, like Mark Zuckerberg. I attach great importance to this, and I'm sure Mark Zuckerberg understands artificial intelligence well, and the man says we need to spend some more money and Wall Street is punishing it.

Because Wall Street is a strange place where short-term analysts, many of whom have no understanding of technology, gather together. Of course, there are many good ones among them, but most of them are garbage. Especially when it comes to new technology and long-term investment in a new technology. Let me give you an example on this matter. Tesla's balance sheet arrived on Tuesday. Later, Elon Musk explained his vision for the future. Yesterday the stock rose nearly 10% on the stock market. Of course, Wall Street analysts immediately rushed over and gave their new ratings. One of them is the Bernstein analyst. He said that we are still selling Tesla. Our target price is $120. Because in our opinion, this autonomous driving project of Tesla is too complicated. They also said that even if autonomous driving becomes a reality one day, we are not sure that Tesla will be the winner.

Bernstein analyst Toni Sacconaghi is a good 5-star analyst, but I'm not sure he's a good analyst on Tesla. Over the years, this analyst has given a Hold from 2016 to mid-2021 for many years. Tesla then starts a great rally and says sell after it starts. After Tesla continues its incredible rally, Tesla declines a bit, then rises again. It doesn't matter to Bernstein analyst Toni, he always sells. Because Bernstein, I'm sorry, is a complete stoner when it comes to technology. For example, Apple is extremely successful, 70% of its predictions came true. Because Apple hasn't produced a new technology for a long time. Apple was also unsuccessful when it started producing technology. But it has been successful recently. For example, Toni came forward about Apple in 2008 and said that it was impossible for Apple to sell 10 million phones. Their phones are gathering dust on the shelves right now. Well, Apple sold 11.6 million phones in 2008.

Afterwards, Toni's prestige is seriously shaken. He becomes quite disgraced after this incident. Because when a technology is new, remember that the iPhone came out in 2007. There are many clouds of uncertainty hanging over it, and Excel experts like Toni who do not understand technology do not have the data, knowledge, or technological foresight to look into these clouds of uncertainty. Then, rapid growth comes as Apple solves the technological problems with the iPhone and consumer adaptation increases. Only then does Toni begin to make successful evaluations. You need to understand this. So you shouldn't listen to Wall Street when a technology is new. When a technology is new, you need to make your own analysis, and it becomes more important to listen to the opinions and comments of people from the technology sector rather than Wall Street analysts, and if possible, to experience that technology yourself.

When I look at it from this perspective, the predictions about Lama 3 are very strong in the technology sector. There was already great appreciation for Lama 2. I have 100% belief that Meta's data set and Meta's engineering skills will create one of the best artificial intelligence in the world. I also use Meta's metaverse products. I have Quest 2 glasses. Recently, I had the chance to experience the augmented reality glasses developed by Meta together with Facebook. I also read all the technology writers' comments about Meta's Quest 3. There is a very successful company on that side, too. It still has a long way to go. But there is a successful company. Meta's existing businesses are already extraordinarily successful. It seems like artificial intelligence will make things better.

Because if you are a company that makes money from advertising revenue, it is critical to connect the right person with the right advertisement at the right time. Artificial intelligence is a super tool in this regard. So, from here, there is nothing that I can rationalize for Meta losing 15% value in one day. This means a loss of value close to 200 billion dollars. In the short term, it may go even further backwards, of course, anything can happen. But if I wanted to be a long-term Meta investor, I would slowly start making costs at these points. I do not invest in Meta in the long term. Because I don't like Zuckerberg. But here Meta gives an opportunity. One should not listen to Wall Street idiots too much. If you want another proof that Wall Street is really made up of huge stupidities, it comes with the reaction of other stocks to Meta yesterday.

When you look at Meta's and Tesla's statements the day before, it is certain that Nvidia's business will go very well. Tesla said, "We have significantly increased our processing power." So we bought a lot of chips from Nvidia. “We will continue to buy more,” he said. "We will continue to invest in meta, but more investment is needed in artificial intelligence," he said. Well, if you look at what Nvidia's stock did yesterday, it was already in the negative during the day - 3.33. After Nvidia's balance sheet came out, it fell by -1.66 more. So do you think this will happen? Meta says I will buy more Nvidia chips. Tesla says it will buy more Nvidia chips and Nvidia's stock falls. Because some of these are obviously algorithmic transactions. In other words, there are some correlations between stocks in the minds of the algorithms, and when one technology company falls, other technology companies also go down.

If I give other examples from yesterday, for example, Microsoft also fell by 1.85%. The reason for Microsoft's decline may be something like Microsoft could not make money from artificial intelligence this quarter either. But other than that, I don't think it makes much sense. So sometimes we really need to close our ears to Wall Street. We need to get away from daily price movements. If you have wanted to invest in Meta for a long time but could not find the right price, it seems like something can be done gradually from here. I have a rule like this. After the balance sheet comes, I don't even touch that stock for 3 days. I hope these ratings become clear. Let the noise end, etc. But after that, if you believe in Meta's vision, what Zuckerberg will do, and are aware of the company's tremendous financial performance, I think it might be wiser to listen to your own intelligence, not Wall Street analysts.

The information, comments and recommendations contained herein are not within the scope of investment consultancy. Investment consultancy services are provided within the framework of the investment consultancy agreement to be signed between brokerage firms, portfolio management companies, banks that do not accept deposits and customers. The comments in this article are only my personal comments and these comments may not be appropriate for your financial situation and risk return. For this reason, investments should not be made based on the information and comments in my articles.

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