Meta Platforms (FB Stock) & Google Stock WARNING! – Snapchat

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Hi let’s talk about snapchat so in case you haven’t been following the market but i doubt it because most of you are extremely avid investors so just last week on friday snapchat actually closed at 9.96 usd and it actually experienced a 40 intraday drop so the natural question would be what the heck happened essentially in the entire digital advertising space as

Well google was also down 5.81 and meta was down 7.59 so what was the trigger point so the trigger was smashing that like button if you haven’t already also this video is sponsored by reboot so in case you didn’t know webu recently leveled up the game from now until the 1st of august 2022 every single new signups can get up to 120 usd worth of microsoft shares i’ll

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This is not a common feature for other brokerage platforms so they pride themselves in zero commission trading as well don’t let this eight percent roi deal get away link in the description now getting back to the video essentially snapchat announced their earnings and it was abysmal to say the list and more importantly why was the entire digital advertising space

Affected the market is trying to front run the idea that hey the entire digital ad space or all these companies that rely heavily on digital advertising will see a significant impairment in terms of both top line and bottom line earnings so of course you can see it as a form of foreshadowing for the rest of the companies in the same industry and more importantly

In this upcoming week a lot of your mama stocks or your fang stocks are gonna report earnings so you look at alphabet microsoft meta apple amazon and of course looking at snapchat earnings it’s definitely not a rosy picture if you were to extrapolate the same sort of data for meta and alphabet however in this video i’ll just like to put forth a different case

And essentially try to highlight why snapchat is a rubbish business and honestly if i to ask myself i don’t exactly know what investors of snapchat is trying to achieve and why are they invested in this company in the first place so also not to over complicate or over analyze things and truth be told i don’t really understand snapchat’s business model in details

And personally i’m also not a snapchat user i’m a facebook user i’m an instagram user i’m a google user i pretty much use most of the social media platforms out there other than snapchat so i really don’t know why this company is still in existence but of course um this is just based on anecdotal experiences so if you have to look at snapchat’s second quarter

Earnings financial results their daily active user increased by 18 year old year their revenue increased by 13 year on year everything don’t seem too bad if you were to look at just top line numbers and some of the key metrics and a lot of all these so-called social media platforms however their operating cash flow was negative 124 million and their free cash flow

Was negative 147 million dollars and you can see that hey why did they not put on the year-on-year percentage increase or decrease and you will understand why later so if i were to scroll down and to just look at the financial summary revenue increased by 13 net loss 422 million compared to 152 million adjusted ebitda was 7 million compared to 117 million in the

Prior year so this is a negative 94 increase operating cash flow negative one two four negative one zero one and that’s a negative twenty three percent increase free cash flow negative one four seven to negative one one six and that’s a negative twenty seven percent increase and if you just look at all the other numbers it’s just laughable and disgusting if i can

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Put it that way i don’t even have adjectives to describe my feelings from here on so on top of posting such rubbish results common share outstanding still increase by 3 so they are not only increasing share they’re not even producing results and they’re just spending money left and right with no regard to the common stockholder so i i don’t exactly know what’s the

Objective of this company and the bot itself so if you’re to ask me personally if you’re expending so much money if your adjusted ebitda is down your operating cash flow is down your free cash flow is down however in exchange of that if your revenue is growing top line by at least 40 50 maybe that’s still forgivable however if you look at all the different benchmark

And metrics here everything across the board is down and revenue is up by 13 so which explains why i don’t really understand why anyone is invested in this company anymore of course if you’re to go into the summary and the key highlights of the statement by the company they’re saying that they’re investing in the augmented reality platform and i don’t know who they’re

Trying to compete with meta platforms let’s see who has made more cash to burn on this they grew their content offering they expanded their product and partner ecosystem and more importantly when i scroll through the high level overview or summary that they are providing to investors i don’t exactly know what is their endgame or how they are even intending to pull

Themselves out of this mess that they created furthermore you can really see that there is a pure mismanagement of resources sure top-line revenue is growing growing by a low humble 10 plus percent 13 if i remember correctly and the cost of revenue is arguably the same where there really isn’t much that you have to put in in order to deliver the same sort of experience

But you can see that in terms of r d it ballooned and more importantly in the sales and marketing i think it’s close to double so the ironic thing is they doubled their sales and marketing numbers but revenue grew by 11 13 give or take personally i wouldn’t ever go near it and one of my key criteria when i look at businesses is i need free cash flow i want to see

Cash generating assets and in this case if my memory serves me right snapchat doesn’t even have positive free cash flow however if you were to look at snapchat’s price pattern i can understand why some people might be enticed into looking into snapchat because from its highs it’s down at least 88 percent so just by recovering to half of the valuation of its peak at

40 dollars i mean it’s essentially a 4x but i think there’s something very important to distinguish the stock price is just one part of the equation the second part is the company and if the company is going to produce this kind of earnings results for the investors i only have two words just run however i think the bigger concern for the broader market is what is

The effect or what kind of informations and data points can we extract um from this snapchat earnings and essentially you can see that the market is trying to front run everything and which is why meta and google is also negatively impacted by this snapchat report so you can tell that despite snapchat putting in so much effort in terms of sales and marketing top

Line revenue is not growing as much and many people are essentially speculating because of the recessionary pressures and how a lot of companies are cutting back the expenditure so if you were to look at seeking alpha quick plug as well i have a link for seeking alpha if you’re interested you can sign up with the link below but looking at the earnings projection

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And you can see that over the last 90 days there was a total of 24 earnings revision for meta platforms and 20 to the downside for to the upside essentially if you’re to compare the earnings expectations for meta moving forward we are in it for a while right even compared to q2 of 2021 the consensus was 3.06 and currently the consensus is 256 and just projecting

Out to the following three quarters we are gonna be down negative 19 negative four point four eight percent and negative zero point zero in percent year one year even to look back at the valuation of meta platforms today they’re currently trading at a trilling 12-month pe of 12.81 however the forward pe of meta is around 14 to 15. that being said let’s assume

The scenario where meta’s earnings for the coming four quarters is actually down 20 year on year on every single quarter so even in that scenario meta’s earnings is discounted by 20 for the following four quarters the forward p of meta would be 16 and that’s exactly why valuations are important when you buy into a stock however if you’re to buy a competing company

With a p of 20 a 20 earnings revision will probably bring the pe up to 25 to 26 and that is exactly what the market is trying to discount right now and trying to essentially front run the problem so i think this earnings estimates provided by wall street analysts are critically important because it gives us a sense of idea into attempting to understand what is the

Expectations wall street is trying to price in or essentially what the market is trying to price in i think in one of my previous video on my youtube channel with the title read meta stock institutions dumping facebook on retail investors in that specific video if you haven’t watched it already i do implore you to watch it that’s when chemaf which is one of those

Billionaire investors out there saying that wall street is doing a marital investors a disservice by continuously providing such optimistic guidelines and i think even at current consensus of negative nineteen percent negative five percent negative zero percent on yeah it might be still slightly on the upside where people are still optimistic and not thinking that

This upcoming or impending recession being a very huge impairment to both top line and bottom line now the funny thing is at least for myself i’m actually looking forward to this recession let me try to explain essentially during recessionary periods i understand that top-line demand for digital adverts or trying to expand and advertise across the board everybody’s

Going to bring down the expenses per strings are going to be tightened and a lot of all the top line revenues for many of these digital adverts companies like google and facebook specifically will experience a downfall however in my substance previously and just a quick plug in case you haven’t signed up already link in the description as well it’s totally free

There’s no pay wall in one of my specific articles where i did a deep dive on facebook you can actually tell that a recession or at least in a recessionary environment a lot of all these big docks which host a triopoli of digital advertising space facebook google and amazon they actually tend to benefit more in the recessionary period and i did explain my thought

Process here so meta’s growth in the recessionary environment increasingly there are more chatters around an impending recession not going to lie i’m also in the same camp however i think the extent of the recession is where most investors disagree on if you are to judge meta’s current valuation they are trading at a pe of 12 at the time of this writing if 2022

Proves to be a really bad year or even extending it into 2023 and earnings are cut by half meta’s p will be doubled to 24. it’s simple math so i wouldn’t be too quick to judge that meta is a must buy right now at its current valuation however in the grander scheme of things recessions and economic booms are just part of a cycle the most critical aspect of valuing

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The business fundamentals still relies on how accurately can you predict its future cash flows and profits another point i wish to bring up the digital advertising space so i do agree that the general spending for advertisements will decline but as per string titans frivolous and ineffective spendings are eliminated hence there will be a congregation to the top docs

It was evident in 2020 where ad revenue share decreased from 37 to 35.9 percent for those not in the tripoli google amazon and facebook so i would not necessarily conclude that this will catalyze the depth of meta and you have to look at this graph essentially in 2020 for facebook which is the black line so facebook’s digital ad revenue share actually increase year

On year rather than decrease so essentially if a heavy-handed recession is gonna hit the world i think um it’s gonna benefit the top three even though we can see a general decrease in expenditure but i think those at the lower rung of the industry will essentially be eliminated so companies like snapchat will have the shorter end of the stick so before i end up

This video i just wanted to jump onto one of the bad pcs surrounding facebook which essentially say that oh nobody’s using facebook it’s a boomer platform the longevity of the business is under great amount of pressure so if you have to look at it snapchat has a relatively young audience profile so just take a look at this infographic 13 to 17 years old around 10

18 to 24 years old around 20 and this is the bulk of their audience which is relatively young and they’re extremely good and lucrative if snapchat is able to grow alongside them and then um you have the 25 to 34 at 10 percent 35 to 49 around five to eight percent and then if you’re to compare it to tick tock you can see that it’s a similar curve the it’s not a bell

Curve the curve is essentially tender towards the younger audience as you can see 10 to 19 32 20 to 29 29 so from the age range of 10 to 30 um you have at least 60 on the platform and then if you’re to compare it to facebook um it looks more like a bell curve where majority of their audience is between 18 to 44 and more importantly i didn’t pull out the stats of

Instagram but they kind of modeled the same sort of curve distribution i’ll just like to say this especially for all these social media companies there are only two main metrics you have to look at number one daily active users and the number of people on your platform number two its ability to generate profits evidently in snapchat’s case although despite having a

Very young population and being extremely popular among the kids and the teens which explains that the longevity of the business or the longevity of the ad might be arguably better than facebook instagram etc but on both metrics they can’t grow their active users enough and their profitability is essentially down the drain so in tick tock’s case the profitability

Is not there because they have yet to find an effective way to monetize but the ability for them to grow users are at an exponential rate so everyone is excited for tick tock however in facebook’s case for both instagram and facebook they manage to crack the profitability knob um they’re essentially printing a lot of money um it’s essentially a cash generating

Machine but the main issue is many investors are essentially questioning the longevity of the business itself so what do you think is facebook and instagram really becoming irrelevant these days and just so you know having a young demographic on your platform does not guarantee success with that i’ll see you in the next video but more importantly i’ll see you on the moon goodbye

Transcribed from video
Meta Platforms (FB Stock) & Google Stock WARNING! – Snapchat By Tay Chi Keng