Meta Platforms [META]
Task 2 · META_Underwriting_Model_2026-07-27.xlsx · 6 tabs, live formulas
| Tab | Purpose |
|---|---|
| Assumptions | All drivers; blue = input, black = formula. Segment growth, EBITDA margin, capex, asset-class shares, useful lives, CIP lags, tax, SBC, WACC, terminal growth, maintenance capex. Base-rate check block at the foot. |
| Depreciation Engine | The analytical core. Vintage straight-line schedule with a full parallel calculation at a 4.0-year server life, so the useful-life assumption can be flexed live. |
| Income Statement | Family of Apps + Reality Labs → consolidated → EBITDA → less modelled D&A → EBIT → pre-tax → EPS, plus EPS excluding non-operating income and EPS at a 4-year server life. |
| Cash Flow & BS | OCF, capex, economic FCF (SBC at 10.2% of revenue treated as a real cost), cash roll including debt issuance, net debt, leases, and an off-balance-sheet memo line carrying the VIE exposure. |
| Scenarios | Bull / Base / Bear, terminal revenue linked live to the Income Statement, exit EV/NOPAT, discounting, probability weighting, E[R], cash-hurdle comparison, base-rate check. |
| DCF & Valuation | Unlevered FCF, five-year capex fade to maintenance, Gordon terminal value, WACC × g sensitivity grid, comps, football field. |
All workbooks closed first, then opened in Excel via AppleScript and computed cells read back. openpyxl writes formula strings without evaluating them, so a readback is the only proof.
Readback (2026-07-27):
Revenue : $200,966 $250,987 $296,215 $340,952 $382,361 $421,311
EBIT : $83,278 $103,103 $108,907 $111,159 $111,345 $109,460
D&A : $18,000 $24,900 $39,201 $55,907 $74,100 $92,769
D&A@4yr : $23,625 $32,775 $51,739 $73,644 $97,439 $121,874
EPS : $27.43 $33.56 $35.46 $36.23 $36.50 $36.06
EPS@4yr : $25.63 $31.02 $31.38 $30.40 $28.74 $26.30
EconFCF : 18,509 (25,023) (29,696) (25,841) (14,778) (1,924)
DCF/sh = $78.01 TV% = 177% Scenario PW = $424.59 E[R] = -28.5%
FY2025A ties to the 10-K: revenue $200,966m ✓ (exact), PP&E depreciation $18,000m ✓ (exact), operating income $83,278m vs $83,276m reported (0.002% residual).
Errors found and fixed during verification (each would have failed silently): the D&A fade formula referenced capex as a signed negative figure and drove terminal D&A negative; the cash roll-forward omitted debt issuance; and the original five-year DCF terminated while capex was still ~1.8x D&A, which is not a steady state — a five-year fade period was added.
| Parameter | Value | Basis |
|---|---|---|
| Servers / network share of capex | 58% | FY2025 gross PP&E movement by class (R56) |
| Buildings / shell share | 37% | same |
| Other equipment share | 5% | residual |
| Server useful life | 5.5 years | 10-K R45: "5 years 6 months", extended Jan-2025 from 4–5 years |
| Buildings life | 27.5 years | 10-K R45: 25–30 years |
| Other equipment life | 7 years | 10-K R45: 1–25 years; 7 used as an effective average |
| CIP lag, servers | 1.0 years | Fitted |
| CIP lag, buildings | 2.0 years | Fitted |
| Calibration RMSE, FY2022–FY2025 | $0.38bn on an $8.7–18.0bn series | Grid search — a very tight fit |
The CIP lag is the mechanism, not a convenience. Construction in progress was $50,521m at Dec-2025 and $61,017m at Mar-2026 — 22% and ~24% of gross PP&E respectively — depreciating nothing at all. Meta's capex enters the balance sheet roughly two years before it enters the income statement.
Cross-check against the separately-disclosed servers line (R57, recovered from the R-files and not present in XBRL company-facts): reported servers-and-network depreciation was $7,320m (FY2023), $11,340m (FY2024), $13,360m (FY2025). The engine reproduces the total ($18,000m FY2025 ✓) and the servers/other split is consistent with the disclosed sub-line.
Family of Apps revenue growth. FY2025 +22.4%; Q1-2026 +33% (helped by a weak dollar — constant currency was +29%); consensus Q2-2026 +26.6%. The reference class says digital-advertising growth at $200bn scale decelerates in every cycle. The model assumes 25% → 10% over five years — deceleration, i.e. WITH the base rate. No override is claimed.
Operating margin. FY2025 was 41.4%. ~$2.9bn of FY2025 operating income came from the January-2025 extension of server useful lives — 20.9% of the entire $13.9bn year-on-year increase. The model does not assume the margin holds: it falls to 26.0% by FY2030, driven entirely by the depreciation engine, not by an assumed demand deterioration. This is stated explicitly so the base case is not mistaken for a bear case imposed on the business.
Capex. FY2025 $69.7bn (+87% YoY). FY2026 guided $125–145bn (+94% at the midpoint; the guide was raised from $115–135bn on the Q1-2026 call). The model uses $135bn for FY2026 then decelerates to $183bn by FY2030. Critically: reported capex EXCLUDES the ~$27bn Hyperion campus, which sits in an unconsolidated VIE — so the model's capex line, like the company's, understates the compute being procured.
Depreciation. FY2025 total PP&E depreciation was $18.0bn against $69.7bn of capex — a ratio of 0.26x. The model shows this converging toward 1.0x by roughly FY2031 regardless of any assumption about demand. This is the least discretionary line in the model.
Per references/regime-change-test.md. Meta discloses no customer RPO — it states explicitly that it does not
disclose unsatisfied performance obligations for contracts of a year or less, and advertising is short-cycle.
There is no contracted revenue tranche. Duration matching is therefore applied to the cost and obligation side:
| Tranche | Contracted duration | Model treatment |
|---|---|---|
| Total contractual commitments ($131.0bn) | Ladder: $30.6bn 2026, $22.2bn 2027, $21.2bn 2028, $19.8bn 2029, $19.4bn 2030, $17.9bn thereafter | Modelled at the disclosed ladder |
| Hyperion lease commitment ($12.31bn) | Commences 2029, four-year initial terms | Outside the FY2026–30 income statement almost entirely — flagged as a post-horizon obligation |
| Hyperion RVG ($28bn threshold) | Decreasing over time | Not modelled — not probable per the company. Carried as an off-balance-sheet memo line only. |
| Long-term debt ($58.7bn) | Ladder disclosed | Interest modelled |
| Advertising revenue | None disclosed | Fully merchant; mean-reverting growth throughout |
Contracted share of revenue by forecast year: 0% in every year.
The two-tranche finding that matters, and it cuts bullish: total contractual commitments of $131.0bn are LESS than a single year of guided 2026 capex ($125–145bn). The overwhelming majority of the FY2027–2030 programme is not contracted. Modelling Meta as if it were locked into $180bn a year is modelling an obligation that does not exist. The model therefore treats FY2028–30 capex as management's choice, and the Bear scenario explicitly includes a capex cut path.