For all subscribers
Hope everyone is having a great week. Substack recently added the ability for us to run polls so I figured it would make sense to ask my subscribers what size companies (ie market cap) do you want us writing about most often.
In case you didn’t know this already…
large cap companies have market caps over $10 billion
mid cap companies have market caps between $2 billion to $10 billion
small cap companies have market caps under $2 billion
Just to be clear, we will continue writing about all three groups but I’d love to know which one you’re the most interested in.
If I look back over the past 18 months it’s been pretty balanced between small, mid and large caps however if the overwhelming majority of you pick one of these options then I need to know that so we can focus more of our time and effort in that area.
My next writeup for paid subscribers will go out in the next couple days, probably on Saturday given that it’s been a busy week with quarterly earnings reports.
FWIW, I started a small position in META last night (cost basis under $110) after the company reported Q3 earnings which were certainly disappointing. Revenues were better than expected but EPS was much worse. META still has $30B of cash on the balance sheet and should generate another $20-30B of FCF over the next 12 months. META has never been this cheap (on a NTM P/E multiple) and the stock price is back to 2016 levels. I still have lots of concerns with META and the management team but the stock has finally gotten low enough where I think the current risk/reward is very attractive. META is down 75% from the highs and if we wake up one day and Zuck says he’s willing to reduce spending and start cutting headcount then the stock rallies 20-25%. META would also rally 20-25% if TikTok ever got banned. I still think renaming the company was a stupid decision that has done nothing by confuse and alienate shareholders. I also think it’s time for META to start paying a 1.5% dividend in order to return cash to shareholders but also attract a new class of investor that only buys dividend paying stocks. I bet there’s at least $3-4 trillion worth of assets sitting in mutual funds and ETFs that can only own dividend paying stocks so even if they think META is super cheap at 10x NTM EPS, they still can’t buy any shares without a dividend because it’s against their stated investment policy. I’m hoping that more large shareholders like Altimeter turn into activists and begin pressuring Zuck and the Board to do a pivot on the metaverse because right now that looks like a moonshot project that could take 8-10 years to payoff and drain $80-100 billion of capital in the meantime. That’s just unacceptable. Over the past 10 years META’s revenues have increased by 10x but their employee headcount has increased by 20x — this is absurd. With META’s business model and scale, they should have been able to increase revenues by 10x while only increasing headcount by 5x. They’ve gotten way too bloated. After the Q3 earnings report last night, we now know that META’s net income dropped by 45% over the past 12 months while headcount increased by 28%. Zuck is so out of touch with reality, he still thinks he’s running a $900 billion dollar company with 30% annual growth when he’s actually running a $250 billion dollar company with 0% growth. Zuck needs to realize that META’s glory days are in the past and it’s time to embrace being a low growth, FCF monster that returns lots of capital to shareholders via dividends and stock buybacks. AAPL and MSFT both pay dividends and their stock prices have done very well over the past 5 years which means a dividend isn’t the death blow to growth investors that some make it sound like. In fact AAPL is up 255% over the past 5 years and MSFT is up 170% over the past 5 years — clearly a dividend didn’t slow them down and it probably keeps shareholders loyal for a longer time.
If you have any thoughts on META, good or bad, feel free to share. I’ve only owned the stock for 20 hours and I’m already acting like a disgruntled bagholder haha