Sean Peche of Ranmore Funds says he sees neither pricing or power in Metaâs latest figures, and makes the point that to drop employees in line with inflation -7% – and give the clingons any hope of earnings stability, theyâre going to need to fire 20,000 employees. Zuckerberg has asked for patience from his “patients”, but many shareholders might be feeling thatâs a bit rich! – Sandra Laurence
META…surely you mean WATA?
By Sean Peche*
I think META should change its ticker symbol to WATA – âWhat a disaster!â
Long-term readers will know Iâve tried to warn people for some time about this âgreat companyâ – but even I was taken aback at the level of faceplanting.
Daily Active Users were flat/marginally up in all regions. ARPU was only down 4% q/q worldwide. Yes, revenue declined 4%, but that shouldnât have been surprising to anyone with more than a grade 0 in currencies. The key problem was employees: up 28% y/y.
But why is this a surprise? WATA has been disclosing quarterly employee numbers for years. Hereâs the scary bit: if they donât hire another single employee, numbers will be up 21% y/y next quarter. Now thatâs a big problem: when the mid-point of revenue guidance is -7% (and thatâs a minus, not a hyphen), who wants -7% revenue decline when inflation is +9%?
But havenât all the growth and quality managers been trying to calm investor nerves by saying: âgreat businesses are perfect in times of inflation because they have, âpricing powerâ? Yes, many have. But do you see either – pricing or power? Nope. Now to drop employees in line with inflation -7% and give the clingons any hope of earnings stability, theyâre going to need to fire 20,000 employees.
20,000?
Yip. Terrible for morale. Terrible for sentiment. But the good news is that it will make no difference to free cash flow. How come? Donât they have to pay redundancy payments?
Probably, but theyâll just say itâs âonce offâ and add another reconciling item to their free cash flow table. After all, itâs non-GAAP, so auditors donât care.
Only nerds like me.
And it keeps the analysts away because it doesnât seem many re-calc the number anyway – they just take the companyâs numbers at face value. I mean “Wata Value”…
Speaking of which, free cash flow this quarter was disclosed as only $173m, AFTER adding back $3bn of stock-based compensation. But their market cap is $350bn. So if you annualise that, the free cash flow yield is only 0.2% ($173m x 4 / $350bn).
But werenât people saying this company was cheap? Yes, some were, but as Iâve been saying, itâs only cheap if they make the expected earnings – and they didnât.
So itâs not.
But donât be too harsh, itâs in the Russell Value AND Growth indices, meaning the associated Passives own it. Now weâve discussed Value, but do you see any Growth? Negative. Still, at least cash on the balance sheet rose by $173m.
Umm noâŚNet cash fell by $7.9bn to $16bn only 4.6% of their market cap.
How?
Because they spent $7bn buying back stock in Q3 $21bn in the past 9 months buying 101m shares. But thatâs an average price of $208 per share when I see itâs plunging 23% pre-market to $100.
Wow! Well – Zuckerberg did ask for patience from his “patients”.
As I said, WATA!
- Sean Peche of Ranmore Funds
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