Meta: the capex question
Meta's core advertising business is the best in the industry, and it funds a capital-spending program that keeps growing with no stated return target. Whether that spending earns its cost is the whole debate on the stock. My answer: probably, but I want to be paid for the uncertainty.
Sample research report used to test the layout. Delete before launch.
Thesis
The ad business generates more cash than the company can sensibly reinvest, so it reinvests it anyway. If the infrastructure spending produces better ad targeting and new products, the stock is cheap. If it produces neither, the free cash flow that used to support the multiple keeps shrinking. I lean toward the first outcome but size the position for the second.
Catalysts
- Ad revenue growth above twenty percent, which has covered the spending so far.
- A capex guide that flattens, which the market would read as discipline.
Risks
- Capex guidance rising again next year with no matching revenue.
- Regulatory action on the ad business in Europe.
What would prove me wrong
Free cash flow per share falling for two years running. At that point the reinvestment story has failed on its own terms.
Position
Half position. The other half waits for either a capex guide that flattens or a pullback to the 200-day average.
Updated Dec 12: corrected the price at research, which I had copied from the wrong day.