Hi YXI friends,

Today, we are going to do a deep dive on Meta (META). We not only examine the top line growth, but also break down Meta’s ad revenue dynamics as well as how AI plays a role in Meta’s success.

We review Meta’s valuation against its growth, Mag-7 peers, and the discounted cash flow model.

Finally, we analyse Meta’s technical price action, with a potential trade idea waiting for entry.

Let’s dive in!

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. Meta is Still All About Advertising Revenue

Billionaires love pitching visions.

Elon Musk can talk about Robotaxis and Humanoid Robots all day long, but until proven otherwise, Tesla still makes all its money from selling cars.

Zuckerberg, on the other hand, loves the metaverse. Clearly, given the name and logo change 3 years ago. And just like robotaxis, the metaverse has not still not taken off in a meaningful way in the mainstream.

3 years after Facebook became Meta, Reality Labs - Meta’s VR/AR division - makes less than 1% of Meta’s revenue. I’m sure its day in the sun will come, given the ever-increasing sophistication of AR/VR/MR. Just not today.

Today, advertising makes 98% of Meta’s revenue. And it’s a pretty fast growing business. In fact, Meta grew second fastest (behind NVDA of course) among the Mag-7 stocks.

Shareholders have been richly rewarded too, as Meta’s stock price shot up 82% in the past year. According to Forbes, Zuckerberg’s wealth went from $64 billion in 2023 to $177 billion today. I don’t know about you, but if my net worth grew by $100B in a year, I would probably spend a couple of bucks on a new hairstyle and gold necklaces too.

2. Q2 Growth: Strong Performance Amidst a Slowdown

In Q2, Meta grew its quarterly revenue by 22.1% YoY, marking a fourth quarter of 20%+ growth. This represents a slow down from the peak Q1 growth of 27%. Judging by the management’s Q3 guidance, quarterly revenue will slow further next quarter to mid-16%.

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