Meta Platforms (FB) , the parent of Facebook, reported mixed fourth-quarter 2021 results. Revenue was slightly ahead of expectations but the firm missed on the bottom line due to higher investments in not only the reality labs segment but also in reels and in overall improvement of its advertising back-end. The firm’s first-quarter 2022 revenue guidance was below the consensus estimates, driving the stock down 23% in after-hours trading. We have slightly lowered our revenue growth assumptions for Meta, resulting in a US$400 fair value estimate, 1% lower than our previous valuation. We don’t think the market’s reaction is warranted and believe wide-moat Meta’s shares now present an attractive investment opportunity.
Total fourth-quarter revenue came in at US$33.7 billion, up 20% year over year. Advertising revenue increased 25% as businesses continued to allocate their ad dollars to Meta’s platforms. The family monthly active people count increased to 3.59 billion during the quarter, from 3.58 billion in the previous quarter and 3.3 billion the year before. Average revenue generated per person increased 9% from last year and 15% from the prior quarter, indicative of healthy advertising demand. With increase in investments in metaverse and the firm’s advertising offerings, operating margin declined nearly five percentage points to around 33% during the quarter.
Management believes inflation-related cost pressures and limited access to data due to Apple’s policy changes may slow growth in demand and overall advertising revenue, most of which we had already modeled into our projections. But we think Meta remains an attractive business. Its core advertising business, with nearly a 50% operating margin, continues to perform well. While possibly lower ad prices (mainly for short form video ads) and Apple’s iOS changes may hurt ad revenue growth more than we initially expected, we think these impacts will be short-term.