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hey everyone and welcome to launching racing in today's episode we will be discussing metastak one of the most controversial stocks in the market with the recently running to meta there has been a lot of speculation about the company's future and potential that is why I am excited to hear from Terry Smith the founder of fansmits who believes that meta stock is the cheapest his fumble he is a legendary investor with a proven track record of beating the market and I think it is really important to get his ideas about meta scoring state so get ready to learn something new and exciting and without any further Ado let's get started I'm on the second part I'll take it okay good um what's the stock that we Hull that we think is the most undervalued uh this is going to be a shocker and I know it happens to sachet into another question or 10 that's out there meta platforms I think is the cheapest stock that we own uh well it's I I Don't Want To Tread on too much that I know you've got a question waiting for us on this um it's on a p of about 15.
um notwithstanding all of the bad vibe that some people have got about this it's still one of the two leading digital advertising businesses in the world uh it has two billion users the users are still rising in number I mean I've lost count of the number of questions we get including some tonight but in general for people who say my children don't use Facebook anymore do children live in Indonesia then I mean don't you think it might be a wider world than Tunbridge Wells apologies to anybody that we need to think about in this regard um I mean some of this is masked at the moment by the noise surrounding the metaverse and we probably should talk about the noise surrounding the metaverse because we can wax lyrical about that to a degree even though we don't know the answer but I almost feel we don't need to know the answer because if they stopped spending on The metaverse Today spent 13.7 billion dollars online stop spending on the metaverse today we would have a business on a single figure PE that's one of the two top digital advertising businesses in the world now I'm not sure that's a really good thing for them to do by the way all right I'm uncertain about that but I do know that they could just stop it and I think if they just stopped it the share price would would roof it actually I'm not sure it's a good thing but I think that's what would happen well I mean that segues into the next question which comes from Jack Newton uh Nugent thank you Jack and he says uh do you regret buying meta Paul I certainly regret buying at the time I bought it that's for sure because we could have bought it a lot more cheaply um but let's let's just put it in context shall we I and I and I regret buying it for the standpoint of it's a pain in the ass to own because people keep shouting at this an awful lot about it as predicted by uh Julian who is now known on the team as the Nostradamus of Westport because he said it's a difference that's what I live yes yes where you live and uh and um like he's able to predict Chief Executives quitting to within the months basically it's foreign he said when we were just baiting whether to own it it would be a difficult stock to own and then he came back after we bought it and said maybe it was too difficult to stop it's a real pain in the afternoon and we could have bought it but but let's put it in context I think we're actually in profit at the moment I mean it's up over 40 year to date all right so we're not sitting here having lost you some large percentage of your money in meta platforms we're actually very slightly in profit there's also a few sort of characteristics of it if you look at the numbers up there you will see what we're trying to put in context for you this is a business which in the last year had 116 billion dollars of of revenues it doesn't get a single penny of cooks from the people that use the platforms from the people who use Facebook Instagram WhatsApp it gets it from the advertisers it's got about 12 million advertisers which by the way in terms of growth and since that's whether I would say is not a particularly High number actually um you can see it's got gross margins of 78 that's the kind of business we like you know makes things for 22 sells them for a hundred uh basically it comes down to operating margin of 25 and a return on Capital employee which admittedly has been going down as it's been rowing in an awful lot of spending to 23 return on Capital employed so you know that's the past not the future but it is you know it's a pretty strong business as I said earlier on it's on a PE at the moment of 15.3 for what it's worth these are not our numbers these are consensus numbers it's on 12.7 times so it says for uh on Bloomberg which is pretty cheap considering what it's doing in terms of spending at the moment you can see the s p is on about 20 times so um there's quite a lot of scope for things to go wrong here before this were to look expensive and there's the the daily average active users on the on the platform you can see it's about 2 billion and still Rising gently I mean I should just talk about things rising and Rising gently in particular in relation to things like this most people seem to deal with it anecdotally and say well I mean it's not growing because nobody uses anymore well that demonstrably isn't the case then there's a subset of that where people say but it's only growing at four percent for around them when you've got two billion users and you're not allowed to operate in China So you you're effective your effective Market is only a bit over 5 billion human beings and you've got to max out the ones in Africa because quite a lot of them haven't got any access to broadband you've probably got almost all the people in the world who can use your product on there so is it going to be growing at 20 per annum is it so the fact that it's still growing at all I think is quite impressive you don't worry about the competitor landscape I mean I notice that uh Facebook and and Google meta and Google their share of the US online advertising Market actually fell below 50 yeah last month for the first time ever you don't worry about the competition but worry about everything actually um look I think they're facing a couple of things in the advertising Market one of which you describe which is the competitive landscape which has moved against them it's moved against them with the IOS operating system changer Apple where they can't actually follow the uh the data as well as they they're used to in terms of the effectiveness of advertising um and it's moved against them in terms of people who are coming up developing advertising so people uh like Amazon for example who are moving into the advertising space quite effectively um but I still think they are actually a very very big influence and even though these two are only 50 the you know the the ubiquity of the communications platform and in Google the search platform I still think is an enormous grab uh in terms of advertising for them oh you probably want to make the point that the uh I mean one thing we're going to find is that is that these companies are now so big that they're just going to be a lot more cyclical than they were before yeah I think that's a there's inevitability of that if you look back in history Tech was always relatively non-sexical and relatively because it was on a secular growth Trend by the way I think it's still on a secular growth Trend I don't think there's any doubt about that but it's such a much bigger part of what we spend now that it can't avoid being a bit cyclical now I don't think that's that's possible I said we talk about the metaverse um uh people and they're spending a lot of money on it um what is it well it's obviously a a form of enhanced stroke virtual reality products um since we haven't actually mostly seen it uh it's difficult to tell you exactly what it is how do we attempt to approach that then we attempt to approach it by talking to people who we think might understand it in other companies or might be users of it people like Microsoft and Apple and Estee Lauder and L'Oreal and so on and what we get from that is a sense that as much as we find it difficult to envisage what this is because we haven't seen it there is a reality behind it and it will emerge of course it still doesn't mean that that meta is going to be the leader or a leader in it they may they may imagine they may fail but I don't think we should think that we're talking about something which is science fiction a pipe dream here I think it's a lot more more than that I mean to give you a a couple of thoughts on that I mean the the people that we talk to in the consumer companies are absolutely clear in things like Cosmetics that this is going to be a part of the future for it the Koreans just announced what it's worth that they think they're going to create one and a half million jobs from it uh basically uh people who've got some grasp of Technology energy in terms of the national direction of their economy and so on so well that was some amazing Insight from Terry Smith he clearly believes that meta has a lot of potential to grow its revenue and profits from its social media platforms e-commerce initiatives and metaverse Ambitions if you want to learn more about meta stock and why I think it's a great buy right now check out my other video where I go deeper into its fundamentals and valuation the link is in the description below thank you for watching and don't forget to like share and subscribe for more videos like this see you next time
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