Fined!
Meta Platforms (META) , the parent company of social media networks Facebook and Instagram has been fined E1.2B ($1.3B) by regulators in the European Union for sending data from Europe to the US.
The fine exceeds the E746M ($806M) fine levied against Amazon (AMZN) under the GDPR (General Data Protection Regulation) back in 2021 - which Amazon has appealed - in Luxembourg.
This action was brought about by Ireland's Data Protection Committee. In addition, Meta was ordered to "suspend" the transfer of information about European Facebook users back to the US and to delete any already sent data within six months.
For his part, Nick Clegg, Meta president of global affairs, called the decision "flawed" and "unjustified." Meta indicated that the firm feels that it has been singled out when its practices are commonplace for many businesses headquartered elsewhere, but also operating across borders within Europe.
Is This a Big Deal For Shareholders?
Not right away, if Meta Platforms appeals, which I would expect. For the most recent quarter, Meta reported net income of roughly $5.7B, so we are talking about a potential 22% of one quarter's income. I would think that if this fine is paid in full with no appeal and or no settlement that yes, that would leave a nasty mark. It does not change, in my mind, the investment thesis for this name.
Meta Platforms reported the firm's first quarter financial results almost a month ago now. Meta beat Wall Street quiet decisively on both the top and bottom lines. Ad revenue, which is really the most important thing here, grew 4.1%. Meta guided revenue for the current quarter toward the lower end of what Wall Street had been looking for at the time.
That said, the firm also dragged down expectations for full year operating expenses, while reiterating full year CapEx expectations. This spending is expected to be focused upon artificial intelligence more than anything else, which would loop back toward the optimization of advertising sales.
Though free cash flow was down, the firm remains a free cash flow beast at more than $6B generated for that quarter. The balance sheet is better than golden, with almost $37.5B in cash and long-term debt of less than $10B. The firm's current ratio at quarter's end printed at 2.07.
My Thoughts
If anything, Meta has learned how to cut unnecessary costs, and has had to learn to refocus after having made obvious mistakes in recent years. Though the stock trades at 21 times forward looking earnings - and that is a better valuation than the S&P 500 broadly bears, this is not a "growth" stock type valuation.
This is a free cash flow provider type of valuation as the nation most likely goes into a tougher economic environment. I think META is fairly valued here.
This is an updated version of the chart that I drew up for you in late April. I took some profits at my target price of $227 after the stock broke out from that $198 pivot that was created by the cup with handle pattern. I had to chase my way back into the stock, to get back the shares sold at $234 and change... Yes, I see the unfilled gap, but take a look at that chart in this way...
The trend is your friend. Once a stock is accepted into the "AI club" it will run through a number of target prices. Just look at Microsoft (MSFT) and Nvidia (NVDA) . Target? Loosely, toward the top of that price channel.
More importantly... when to cut bait? Dips are buyable in my opinion until the lower trend line is pierced and not quickly retaken. Those unfilled gaps are there. They are calling the stock's name. Timing though, is another thing. The lower trendline currently runs though $235, the 21 day EMA runs at $233. I worry not, until those levels are surrendered.
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