Meta Platforms (NASDAQ:FB) CEO Mark Zuckerberg had a lot to say about the metaverse on its Q3 2021 conference call at the end of October. The billionaire wants to take his company and FB stock in another direction where shareholders get even wealthier and change the world forever.
Answering an analyst’s question about the metaverse as he sees it, Zuckerberg said:
“This is not an investment that is going to be profitable for us anytime in the near future,” Zuckerberg stated on Oct. 25.
“But, you know, we basically believe that the metaverse is going to be the successor of the mobile internet, that it’s going to enable social experiences that are the ultimate expression of what we try to build, which is allowing people to feel really present with the people they care about no matter where they actually are.”
The metaverse is coming.
The Metaverse and FB Stock
You can say what you want about Zuckerberg’s personality – or, lack thereof – but in two or three sentences, the billionaire has me excited about something I previously couldn’t give two cents about.
As Zuckerberg also stated in its latest analyst call, the augmented reality and virtual reality investments it’s making in 2021 to pave the way for the metaverse will cost shareholders and the company about $10 billion in operating profits.
Richard Branson often says, “If you want to be a millionaire, start with a billion dollars, and launch a new airline.”
Meta Platforms, in much the same way Amazon (NASDAQ:AMZN) can shift priorities on the fly due to its immense wealth, puts the company and its shareholders in an enviable position.
Don’t be afraid of this reality. Embrace it. Here’s why.
FB Stock and Its Cash Stockpile
CFO Dave Wehner highlighted three things in the analyst call that caught my attention.
First, in the third quarter, it had $9.5 billion in free cash flow, bringing its nine-month total to $25.9 billion, 88% higher than a year earlier. For the trailing 12 months ended Sept. 30, it was $35.8 billion, good for an FCF margin of 31.9%.
Second, in large part because of its cash flow generation, FB stock finished the third quarter with $58.1 billion in cash and marketable securities on its balance sheet. That represents 34% of its total assets. More importantly, it has no debt. Zero. Bubkus.
That’s a nice place to be when you want to go on a spending binge.
Finally, Wehner stated that the company repurchased $14.4 billion of its stock in the third quarter. For the nine months ended Sept. 30, it repurchased $25.63 billion of its stock at an average price of $332.86 a share. That’s not a great return so far, but in two or three years, I’m sure its buybacks won’t look nearly as bad.
So, with the new $50 billion repurchase authorization, it can buy back $58 billion of its stock. Over the past three fiscal years, Meta has repurchased 128 million shares of FB stock at $182.03 a share. It lowered the share count despite issuing more than 100 million shares for employee compensation.
Meta’s return on investment for its share repurchases is 86% as I write this. Not a bad payday.
Zuckerberg said the metaverse development would cost it $10 billion in operating income in 2021. In the trailing 12 months, it has just less than $47 billion in operating income. With $34 billion in operating income through the first nine months of 2021, it’s almost a lock to finish with more than $40 billion in operating income.
And that’s despite a $10 billion haircut for the metaverse.
The Bottom Line
I love companies with zero debt. It’s like a badge of honor. Sure, some will say Meta’s got an inefficient capital structure, but why have debt when you can self-finance?
Apple (NASDAQ:AAPL) broke out the debt to go on a dividend and buyback rampage. It plans to accelerate those buybacks as it goes net cash neutral, which means its cash hoard equals its total debt. Today, its cash is about 1.6x its total debt.
Different strokes for different folks.
What’s essential, if you own FB stock or thinking about buying, is that Meta is in an enviable position to be taking this metaverse risk.
Ultimately, I think it will be successful.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.