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Giverny Capital: “Meta Platforms (FB), Deserves Some Attention”

·3 min read

Giverny Capital, an asset management firm, published its first-quarter 2022 investor letter – a copy of which can be downloaded here. For the first quarter of 2022, Giverny Capital Asset Management’s model portfolio declined by 8.21%, net of fees, vs. a decline of 4.60% for the Standard & Poor’s 500 Index. For the trailing twelve-month period, the GCAM model generated a return of 9.63% vs. 15.65% for the Index, also net of fees. Try to spend some time taking a look at the fund’s top 5 holdings to be informed about their best picks for 2022.

In its Q1 2022 investor letter, Giverny Capital Asset Management mentioned Meta Platforms, Inc. (NASDAQ:FB) and explained its insights for the company. Founded in 2004, Meta Platforms, Inc. (NASDAQ:FB) is a Menlo Park, California-based multinational technology conglomerate with a $558.4 billion market capitalization. Meta Platforms, Inc. (NASDAQ:FB) delivered a -38.83% return since the beginning of the year, while its 12-month returns are down by -36.71%. The stock closed at $205.73 per share on April 28, 2022.

Here is what Giverny Capital Asset Management has to say about Meta Platforms, Inc. (NASDAQ:FB) in its Q1 2022 investor letter:

"If there is any good news, I don’t believe this group suffered material impairments to their long-term earnings trajectory. Rather, relatively small earnings misses or reductions to short-term guidance led to large stock declines. I added to several of these positions during the quarter.

However, our holding Meta Platforms, the detested social media business formerly known as Facebook, deserves some attention. It suffered an earnings miss in the fourth quarter of 2021 and provided sobering future guidance. While this qualifies as disappointing news, I think the market reaction was more of a primal scream than a considered response.

As a person who manages other people’s money for a living, I can tell you with confidence that clients don’t like Meta. A few of you won’t own it, restricting me from buying it for you. Others defer to me, grudgingly. There is no other security in our portfolio like this. When a company is so widely disliked, the main reason to hold it is because it is “working,” to use the horrible Wall Street parlance. In other words, your manager owns it because it keeps going up. Once it stops going up, professional money managers happily accept the chance to sell it. No more cranky calls from clients questioning their ethical compass.

The rub, however, is that despite the bad earnings news the economics of Meta’s social media businesses remain exceptionally good. In 2021, for every dollar of revenue generated Meta spent 63 cents on expenses and reported 37 cents of pretax profit. That was considered disappointing, even though very few businesses generate 37% profit margins. On top of that, fully one-third of expenses, or 21 cents on the dollar of revenue, is spent on research & development, which is investment in future growth. In Meta’s case, this amounts to about $25 billion a year invested in various new projects, the most important of which is the metaverse. R&D is not completely discretionary as companies have to invest in innovation or stagnate. But management certainly has flexibility as to the pace of spending..." (Click here to see the full text)

Facebook Inc (NASDAQ:FB), Facebook application login page, Apple iPad Air, tablet, logo
Facebook Inc (NASDAQ:FB), Facebook application login page, Apple iPad Air, tablet, logo

Bloomua / Shutterstock.com

Our calculations show that Meta Platforms, Inc. (NASDAQ:FB) ranks 3rd on our list of the 30 Most Popular Stocks Among Hedge Funds. Meta Platforms, Inc. (NASDAQ:FB) was in 224 hedge fund portfolios at the end of the fourth quarter of 2021, compared to 248 funds in the previous quarter. Meta Platforms, Inc. (NASDAQ:FB) delivered a -31.81% return in the past 3 months.

Just last month, we also shared another hedge fund’s views on Meta Platforms, Inc. (NASDAQ:FB) in another article. You can find other investor letters from hedge funds and prominent investors on our hedge fund investor letters 2022 Q1 page.

Disclosure: None. This article is originally published at Insider Monkey.