META Stock is Crashing - Here's Why I'm Buying More
Summary
Daniel discusses Meta's Q1 2026 earnings report, acknowledging the stock's 10% drop post-earnings and its current position over 20% down from all-time highs. He believes that despite market reaction to increased capital expenditures (CapEx) and operating expenses growing slightly faster than revenue, Meta delivered very strong results. Revenue grew by an impressive 33% to $56.3 billion, and income from operations increased by 30%. While a $5 billion one-time tax benefit significantly boosted net income, Daniel still considers the core performance robust.
Looking ahead, Meta's Q2 2026 revenue guidance projects 25% growth, a slight deceleration from Q1 but still substantial. A significant point of market concern was the increase in full-year CapEx guidance for 2026, from $115-$135 billion to $125-$145 billion, primarily attributed to higher component pricing rather than increased compute capacity. Daniel also notes the ongoing legal and regulatory challenges in the EU and US as potential future headwinds. Mark Zuckerberg's explanations for the CapEx on AI, aimed at creating 'personal superintelligence for billions,' are perceived as vague by Daniel, reminiscent of the speculative metaverse investments, which contributed to market skepticism.
However, Daniel emphasizes several key strengths underpinning his bullish stance on Meta. The advertising revenue growth was broad-based across all geographies, with Europe notably seeing 39% growth. Meta's average revenue per user showed its lowest Q1 drop-off since 2014, indicating an exceptionally strong start to the year at a much larger scale than a decade ago. Both ad impressions and the price per ad are growing simultaneously—an unusual and positive indicator of strong advertiser demand. Meta is outperforming competitors like Google and Amazon in advertising revenue growth and is consistently gaining market share, adding the most net advertising revenue for the fourth consecutive quarter. Its operating cash flow reached an all-time high of $124 billion, and the company generated $48 billion in trailing 12-month free cash flow despite the increased CapEx. Daniel is focusing on operating cash flow growth as a key metric during this CapEx phase.
Daniel's discounted cash flow (DCF) analyses suggest Meta is undervalued. His conservative DCF model, assuming 15% annual operating cash flow growth over the next three years and a multiple of 13 times operating cash flow (below historical averages), projects a 17% compounded annual growth rate (CAGR), a fair value of $732, and a future stock price of $968 by the end of 2028. A more optimistic DCF, projecting 18% OCF growth and a return to the historical average multiple of 15x, forecasts a 26% CAGR, a $911 fair value, and a $1,200 future stock price. Daniel notes that Meta is currently trading at 12.46 times its operating cash flow, below its historical average of 15.66x and median of 15.25x. He concludes that Meta's core advertising business is 'firing on all cylinders,' benefiting from AI, and offering a discount in the market today, even in a pessimistic scenario.
Mentioned Stocks
Reasoning: Daniel is buying Meta because he believes the stock is undervalued despite the post-earnings drop driven by concerns over increased CapEx and slightly decelerating revenue growth. He points to Meta's robust Q1 2026 performance, including 33% revenue growth and 30% operating income growth, with Q2 revenue guidance projecting 25% growth. Daniel highlights that Meta's core advertising business is "firing on all cylinders," demonstrating strong demand with both ad impressions and price per ad accelerating simultaneously across all geographies. Meta is gaining market share against competitors like Google and Amazon, consistently adding the most net advertising revenue. Despite the higher CapEx, operating cash flow reached an an all-time high of $124 billion, and the company still generates significant free cash flow ($48 billion trailing 12-month). Daniel notes Meta is trading below its historical average and median price to operating cash flow (12.46x vs. 15.66x average). His conservative discounted cash flow (DCF) analysis projects a 17% compounded annual growth rate (CAGR), a $732 fair value, and a future stock price of $968 by 2028, even assuming a significant deceleration in operating cash flow growth to 15% annually and a lower multiple of 13x. He believes the market is overreacting to short-term concerns while the long-term fundamentals remain strong.