Meta Platforms [META]
Task 3 · as of 2026-07-27 · spot $593.87 · market cap $1,507bn · EV ~$1,513bn (incl. leases)
Model: META_Underwriting_Model_2026-07-27.xlsx — live formulas, verified by AppleScript readback with all
workbooks closed first.
| $m unless stated | FY2025A | FY2026E | FY2027E | FY2028E | FY2029E | FY2030E |
|---|---|---|---|---|---|---|
| Revenue | $200,966 | 250,987 | 296,215 | 340,952 | 382,361 | 421,311 |
| growth | — | 24.9% | 18.0% | 15.1% | 12.1% | 10.2% |
| EBITDA (pre-D&A) | $101,278 | 128,003 | 148,108 | 167,066 | 185,445 | 202,229 |
| D&A (vintage engine) | $18,000 | 24,900 | 39,201 | 55,907 | 74,100 | 92,769 |
| Operating income | $83,278 | 103,103 | 108,907 | 111,159 | 111,345 | 109,460 |
| operating margin | 41.4% | 41.1% | 36.8% | 32.6% | 29.1% | 26.0% |
| Diluted EPS | $27.43 | $33.56 | $35.46 | $36.23 | $36.50 | $36.06 |
| EPS at a 4-year server life | $25.63 | $31.02 | $31.38 | $30.40 | $28.74 | $26.30 |
| Economic FCF (after SBC, after capex) | 18,509 | (25,023) | (29,696) | (25,841) | (14,778) | (1,924) |
FY2025A ties to the 10-K exactly: revenue $200,966m ✓, PP&E depreciation $18,000m ✓, operating income $83,278m vs $83,276m reported (a $2m rounding residual).
The central line. EBITDA margin holds between 51.0% and 48.0% — the advertising business is not deteriorating. Operating margin falls from 41.4% to 26.0%. The entire 1,540bp of compression is depreciation, which rises from 9.0% to 22.0% of revenue. This is not a demand forecast. It is the arithmetic of $827bn of cumulative capex meeting a 5.5-year useful life.
Note also the shape of EPS: it rises to $36.50 in FY2029 and then turns down in FY2030. That inflection is the depreciation wall arriving faster than revenue growth can offset it.
| DCF bridge | Value |
|---|---|
| Sum of PV of FY2026–30 unlevered FCF | negative in every year |
| Fade period FY2031–35 (capex → maintenance) | turns positive FY2032 |
| Enterprise value | $203,581m |
| DCF value per share | $78.01 |
| Terminal value as % of EV | 177% |
As with Amazon, terminal value exceeds enterprise value, so the DCF has low information content and is labelled as such rather than presented as a target. Assumptions: WACC 10.8% (CoE 11.09% from a measured beta of 1.52, rf 4.25%, ERP 4.5%; after-tax cost of debt 4.2%; D/(D+E) 3.8%), terminal growth 3.5%, maintenance capex 10.0% of revenue, SBC treated as a real cost (10.2% of revenue — materially higher than Amazon's 2.7%).
Solving for the terminal operating margin that makes the DCF equal $593.87:
| WACC | Required terminal operating margin | vs FY2025A actual of 41.4% |
|---|---|---|
| 6.5% | 33.5% | BELOW current — achievable |
| 7.5% | 41.3% | ≈ exactly current |
| 8.5% | 50.1% | +21% — never achieved |
| 9.5% | 59.9% | +45% — implausible |
| 10.8% | ~72% | — |
At a 7.5% discount rate, Meta at $593.87 requires a terminal operating margin of 41.3% — almost exactly the 41.4% it earned in FY2025. Today's price is therefore priced for "margins never decline from the 2025 peak, ever." At a 6.5% discount rate the requirement falls to 33.5%, which is genuinely achievable. At 8.5% it rises to 50.1%, which Meta has never approached.
Contrast with Amazon, which is the most useful comparison in this pair:
| At an 8.5% WACC | Required terminal operating margin | All-time-high actual | Multiple of the high |
|---|---|---|---|
| Meta | 50.1% | 41.4% | 1.21x |
| Amazon | 26.6% | 11.2% | 2.37x |
Meta's price requires a 21% improvement on its best-ever margin. Amazon's requires a 137% improvement on its. On the reverse-DCF test — which is the closest thing to an apples-to-apples valuation comparison available — Meta is materially less demanding than Amazon, despite the depreciation wall being larger in percentage terms. That is a genuinely counter-intuitive result and it is the reason the two memos reach the same decision for different reasons.
| Bear | Base | Bull | |
|---|---|---|---|
| FY2030E revenue | $362bn | $421bn | $489bn |
| Terminal operating margin | 19.0% | 26.8% | 33.0% |
| Exit EV/NOPAT | 15.0x | 19.0x | 24.0x |
| Value per share, discounted to today | $212.68 | $433.39 | $775.62 |
| Return vs spot | −64.2% | −27.0% | +30.6% |
| Probability | 35% | 45% | 20% |
Probability-weighted value per share: $424.59. Scenario-weighted E[R]: −28.5%. Excess over the 4.7% cash hurdle: −33.2%.
Base-rate check per scenario: - Bear (35%) — the depreciation wall lands ($18bn → $74bn by FY2029) while ad growth normalises to high single digits and AI produces no separate revenue line. Margin compresses 41% → 19%. Precedent: Meta's own 2022, when operating margin fell from 40% to 25% in four quarters on a smaller spending programme. This is a reference-class-supported scenario, not a worst case invented for symmetry. - Base (45%) — revenue compounds ~15% and AI ranking gains carry roughly half the incremental depreciation. Margin settles at 26.8%. Note that even the base case implies ~1,460bp of margin decline from FY2025. This is not a flat-margin base case, and it should not be read as one. - Bull (20%) — ranking gains lift price-per-ad structurally and margin holds at 33%. Requires the above-base-rate assumption that a $180bn-a-year capital programme earns its cost of capital within five years. No public company in the reference class has done this. Named as an override and weighted at 20%.
| Metric | Consensus | House | Gap |
|---|---|---|---|
| Q2-2026 revenue | ~$60.2bn (45 analysts) | ~$60.0bn | −0.3% |
| Q2-2026 EPS | $7.13 – $7.23 | ~$7.20 | ~0% |
| Q2-2026 revenue growth | +26.6% YoY | +26% | ~0% |
| FY2026 revenue | — | $251.0bn (+24.9%) | Consistent with the Q2 run-rate |
| FY2027 EPS | ~$33 (implied from a reported ~18x on a $593.87 price) | $35.46 | House is +7% ABOVE consensus |
| Consensus price target | ~$827 (63 analysts) | — | Street is +39% above spot |
| Rating distribution | 60 buy / 6 hold / 2 sell | — | Near-unanimous bullish |
| Institutional ownership | 79.33% | — | — |
The decisive line: on FY2027 EPS the house number is HIGHER than consensus, not lower. A bear thesis requires the house to be below the Street on the metric the mechanism moves. It is above. This is a Gate 2A failure in the most direct possible way — and it is a failure that could only be discovered by actually sourcing the consensus number rather than assuming the Street must be too optimistic.
Caveat, stated: the FY2027 consensus EPS of ~$33 is inferred from a secondary source's "18x 2027 estimates" rather than pulled from a primary consensus feed (Alpha Vantage exhausted). It is directionally reliable but not precise, and the conclusion is stated with that qualification.
House probability-weighted value $424.59 vs Street target ~$827 — a gap of −49%. Decomposed:
| Component | Contribution | Explanation |
|---|---|---|
| Numbers — near-term revenue and EPS | ~0% | Q2-2026 revenue within 0.3%; EPS within ~0%. |
| Numbers — FY2027+ EPS | ≈ −7%, in the WRONG DIRECTION for a bear | House FY2027 EPS $35.46 vs consensus ~$33. The house is more optimistic. |
| Terminal margin / depreciation trajectory | ~35% of the gap | House models operating margin to 26.0% by FY2030; the Street's target implies materially higher. |
| Multiple / discount rate | ~65% of the gap | House exit 19x NOPAT (≈15.4x EBIT) at a 10.8% WACC. Meta currently trades at ~17.8x trailing EBIT. |
Two-thirds of the disagreement is the discount rate and terminal multiple; one-third is the terminal margin; and on near-term numbers there is no disagreement at all — indeed on FY2027 the house is above the Street.
Per references/trade-construction.md, this is a valuation-and-terminal-assumption disagreement, not an earnings
disagreement. It cannot carry a directional position.
Alpaca SIP daily bars (251 trailing returns to 2026-07-27); SEC EDGAR XBRL and R-files.
| Factor | Value | Empirical reading | For a LONG | For a SHORT |
|---|---|---|---|---|
| 12-1 momentum | −22.5% | Clearly negative — bottom third but not bottom decile | Negative | Positive — a short would be WITH the tape |
| % off 52-week high | −24.6% ($593.87 vs $787.42) | Broken uptrend | Negative | Positive |
| vs 200-day MA | −6.7% | Below trend | Negative | Positive |
| YTD 2026 | −9.9% | Underperforming SPY (+9.0%) by ~19pp | Negative | Positive |
| Realised volatility (1yr) | 38.8% annualised | Moderate tier (25–45%), at the top of it | — | — |
| Beta vs SPY (measured, 251d) | 1.52 | High | — | — |
| Gross profitability (GP/A) | ~0.45 (FY2025) | Well above median — strongly favours long | Positive | Negative |
| Accruals (Sloan) | (60,461 − 115,800)/366,021 = −0.151 | Extremely negative — cash flow massively exceeds earnings. Among the cleanest possible readings | Positive | Strongly negative — argues hard against a short |
| Accruals — adjusted for the CAMT charge | Normalising for the $15.93bn non-cash tax charge: −0.107 | Still very clean | Positive | Negative |
| Piotroski F-score | 7 / 9 (positive NI ✓, positive OCF ✓, OCF>NI ✓, ROA down ✗, leverage up ✗, current ratio up ✓, no dilution ✓, gross margin up ✓, asset turnover up ✓) | Strong | Positive | Negative |
| Asset growth | +18.2% (assets $309.5bn → $366.0bn) | Elevated but well below Amazon's +27.5% | Negative | Mildly positive |
| Short interest | ~1.64% of float, ~2.0 days to cover (dated May-2025, stale — flagged) | No crowding | — | Neutral |
Meta presents the single most contradictory scorecard in this coverage, and the contradiction is worth stating plainly rather than resolving artificially:
references/trade-construction.md, high-accrual, low-F-score names are
the profile where shorts empirically work — Meta is the exact opposite profile on both.The reference file is explicit about how to handle this: "A Short whose scorecard shows clean earnings quality and strong profitability needs correspondingly stronger narrative evidence to pass this gate, and the memo must say so explicitly rather than ignoring the disagreement."
The narrative evidence here is genuinely strong — the useful-life extension worth 21% of FY2025 operating-income growth, the $28bn RVG, $45.99bn of unconsolidated exposure — but it is all PUBLISHED and already reflected in a 25% drawdown. Strong evidence that everyone already has is not strong evidence for the purposes of Gate 2.
Gate 1 therefore scores PASS on mechanism (the mechanism is named, evidenced and quantified — better than Amazon's) but the accruals/F-score corroboration standard is failed, and that is disclosed rather than ignored.
Trailing reported figures from EDGAR XBRL. NTM consensus multiples are not shown — Alpha Vantage was exhausted and unsourced forward multiples will not be presented as sourced.
| Company | Price | Mkt cap | Latest FY | Revenue | Operating income | Op margin | EV / trailing EBIT |
|---|---|---|---|---|---|---|---|
| Meta (META) | $593.87 | $1,507bn | FY2025 (Dec-25) | $201.0bn | $83.3bn | 41.4% | ~17.8x |
| Alphabet (GOOGL) | $326.56 | $4,065bn | FY2024 (Dec-24)¹ | $350.0bn | $112.4bn | 32.1% | ~36.2x |
| Microsoft (MSFT) | $389.10 | $2,904bn | FY2025 (Jun-25) | $281.7bn | $128.5bn | 45.6% | ~22.6x |
| Amazon (AMZN) | $231.39 | $2,488bn | FY2025 (Dec-25) | $716.9bn | $80.0bn | 11.2% | ~31.1x |
| Netflix (NFLX) | not pulled | — | FY2025 (Dec-25) | $45.2bn | $13.3bn | 29.5% | — (context only) |
¹ Alphabet FY2025 not retrievable under the standard XBRL tag; FY2024 shown and labelled.
Reading: Meta carries the LOWEST EV/EBIT in the mega-cap set (~17.8x) alongside the second-highest operating margin (41.4%). On a trailing basis Meta is the cheapest large-cap AI spender. That is a meaningful fact and it argues against a short far more than the depreciation arithmetic argues for one.
The counter, stated for balance: the 41.4% margin is the number the model says will compress to 26.0%, so trailing EV/EBIT of 17.8x becomes ~22x on FY2030 EBIT with no multiple change. Cheap on trailing, less so on terminal.
| Method | Low | Base | High |
|---|---|---|---|
| DCF (flagged: low information content, 177% TV) | $78 | $252 | $352 |
| Scenario probability-weighted | $212.68 | $424.59 | $775.62 |
| EV/EBITDA 9–13x FY2027E | $512 | $614 | $716 |
| P/E 17–23x FY2027E | $489 | $578 | $667 |
| Street consensus target range | $680 | ~$827 | $950 |
| Spot | $593.87 |
The multiple-based methods bracket the spot price almost exactly ($578 and $614 against $593.87). The cash-flow methods sit far below. Meta is fairly valued on multiples and expensive on cash flow — the same structure as Amazon, but much less extreme.
House price target for the trade ticket: $578 — the FY2027E P/E midpoint — implying ~3% downside. A 3% gap is not a thesis in either direction, and the memo says so.