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Hi and welcome to my channel. Bill Aman invested in Meta. His investment make around 12% of his portfolio. This is a big bet for such a concentrated portfolio. So why should we follow what Bill Aman does? That's because he has delivered strong market beating returns with the main fund reportedly up 34% in 2025.
Now let's forget about 2025. Since the inception of his fund in 2004, Bill Aman return was 2500% he 25x his investment in 25 years whereas the S&P returned 850% over the same period. Over the last 8 years his fund returned a compound annual growth rate of 23% beating the S&P 500 as well as many other indexes by a wide margin.
Now, why did he buy Meta and what does he see in it? In this video, I will discuss why he bought Meta. Then I will go over the fundamentals and do a discounted cash flow analysis to see if the investment looks attractive for us value investors. Let's begin. This slide is from Persing Square investor presentation.
It is prepared by Bill Aman himself. Meta is a dominant leader in the digital advertising space. They have 3.5 billion daily active users. This is more than half of the world population. They make $200 billion in revenue. They have an excellent and experienced founder and CEO with Mark Zuckerberg. They are trading at a low multiples.
Bill Aman teases is that it is a high quality business. It is a clear beneficiary of AI integration. The AIdriven content recommendation system enhance user engagement. AI will deliver more relevant personalized ads. Meta is positioned for long-term earning growth after planned spending. They have a strong balance sheet and high margins giving them financial flexibility to do that.
So now let's check the fundamentals of Meta. As you can see in this graph, the company's revenue almost 10x in 10 years. The revenue growth is currently 22% and accelerating to higher growth. Very impressive for a company this size. Now, Meta has a strong balance sheet. They have over $80 billion in cash and cash equivalent, giving them the flexibility to invest where they see fit.
The company is very profitable. Its gross profit margin, the blue line in the chart, is 82% and increasing. Its net profit margin is 30% and the cash flow margin the free cash flow margin is 23%. This means from every dollar revenue the company makes 23% is returned to us investors. Simply amazing fundamentals.
Now what is u scaring the market is how much meta is investing in AI. The company's capex in 2025 were around $70 billion. This is huge. The number almost doubled from 23 and 24. Meta is planning to invest much more in AI in 2026. Look at this article. The company is planning to invest $135 billion in AI.
This is more than its cash on the balance sheet plus cash flow it is generating, which is around $50 billion per year. Now, of course, AI will benefit Meta a lot, helping the company, recommending the right content for the right people and improving advertisement, targeting to the right audience, and increasing the sales of advertised products and services.
But 135 billion will go out of the investor's pocket to AI infrastructure. Now, Mark Zuckerberg is an amazing CEO, but he had bad investments in the past where he invested billions in the meta world and smart glasses. Let's hope he gets this one right this time. So, what is important for us value investors is the valuation of any company.
Meta is currently trading at 28 PE multiple. Based on its history, it does look fairly valued. Now let's do a discounted cash flow analysis to find out what the intrinsic value of the company is. Assuming the company will grow 15% over the next 5 years. If you look at the revenue growth which is above 20%.
15% is very conservative assuming a multiple of 25 which is fair for a great company as meta and below the current and the average PE multiple over the years. The fair value of the stock is $1,100. The current price is $655 giving us a margin of safety of 41%. So the stock do look undervalued. Now in this scenario I assume that Meta will generate 50 billion of cash flow and this cash flow will be returned to us investors which is not the case in the future of Meta.
Meta is planning to invest the cash and generated cash flow into AI. Now let's do a bull case where Meta AI investment works and the company increases its growth. In this case, I assumed that the first year the cash flow is $0 since Meta is investing it in AI. The year 2 to 5, the 50 billion that Meta is generating in free cash flow will grow by 25%.
This is only a couple of percentage points above their current growth. Assuming a terminal multiple of 27, the intrinsic value of the stock is $1,750. The current price is $655, giving us 63% margin of safety. Considering the bull and the base case for valuation, Meta is looking very attractive at its current price.
The stock seems to be undervalued. I already own shares of Meta. I am considering to buy more in the future, especially if the stock price goes down. Let me know what you think of Meta and if you want to invest in it.
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