META: 2024 Is Bound To Disappoint

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Despite my reputation as a permabear, I was buying Facebook (META) at the end of 2022 (just like I was buying Tesla). But the rally has become overextended and it’s hard to see how 2024 won’t disappoint investors. Let’s dig into the numbers.

In 2023, META had $135 billion in revenue (+16%) and earned $14.87/share (+73%). It was a truly great turnaround from a dismal 2022. A lot of the improvement in fundamentals was due to expense management in what Zuckerberg called the “year of efficiency”. Total expenses were flat year over year at $88 billion.

In 2024, the guidance is for total expenses to rise to $94-$99 billion. Let’s say META can increase revenue at 16% again this year. That translates to $155 billion. Subtract total expenses of $96.5 billion and you get operating income of $58.5 billion. Using a 20% tax rate, that works out to net income of $46.8 billion. Using the current diluted share count of 2,630 million, that works out to 2024 EPS of $17.79. In other words, assuming another solid year in 2024, META is now trading for 27x current year earnings.

That might not seem expensive but I think a repeat of 16% revenue growth this year is optimistic. If revenue grows at only 12% to $150 billion, EPS shrinks to $16.27. In other words, any way you model 2024 it’s hard to not to think that META is at least fully valued if not downright overvalued at its current price. Just like it was a clear buy at the end of 2022, it’s a clear sell today.

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