Meta Platforms (FB 2.33%), the company formerly known as Facebook, is planning to spend well over $20 billion on its business in 2022, with a large chunk of that cash going toward its push into building a metaverse platform.
In this video from "The Virtual Opportunities Show," recorded on Dec. 21, 2021 Fool contributors Asit Sharma and Demitri Kalogeropoulos discuss how that spending is sure to make Meta the leading player in this niche, while potentially generating strong returns for investors going forward.
Asit Sharma: What company do you want to talk about in terms of capital efficiency?
Demitri Kalogeropoulos: I'll try to be quick here. Staying within our sector, too, of the tech world, I'd like to highlight a company formerly known as Facebook, Meta Platforms. Mainly because it's a hard question with a lot of tech companies. When you look at a retailer with a lot of hard assets, it's easier to look at the track record of the return on invested capital and how they've been creating this over time. But tech companies, are little harder to do, particularly with Facebook's. I think it's clear that Facebook has allocated capital really well in its first nine years now as a public company. It's also clear that they're going to have, I guess, when I look at as an investor, I want a company that can generate a whole lot of cash and then can productively deploy a whole lot of cash, so increasingly large numbers. Facebook checks those boxes really well. Free cash flow over the last nine months that ended late September of this year was $26 billion, with a "B," twice almost 100% higher than the same nine months a year ago.
That's after spending $13.2 billion on capital property and equipment, basically datacenters as mostly where that money is going. Operating cash was $40 billion, they spent 13 billion of that on property plant equipment and they were leftover with 26 billion in free cash flow. The company's projecting spent $19 billion in cash. Deploy that toward these uses this year and they're expecting to ramp that up to almost $25 billion next year. Mainly because they want to aggressively spend in this metaverse infrastructure situation.
Those are just huge numbers and it's clear that this company is going to be one if not probably the largest I could think of two or three other names that might even approach that in terms of the company that is going to be deploying cash in the virtual space. It still remains to be seen. We don't know how productive that deployment is going to be because we don't know what these assets are going to look like, but it's going to be an exciting time to watch. It could be a lot of capital coming back to shareholders who hold onto that whole thing.
Asit Sharma: Yes, I think for investors like myself who have been skeptical of Meta just with their struggles on user privacy. I think management, which is well intention in some ways, but doesn't always press itself hard enough on ethical issues. There's a great counter argument and you just presented that case. Where else are you going to find this cash flow that can be constructively employed into high-margin businesses. High return on invested capital, revenue streams, I think this is an understated strength of Meta. It will be fun to watch if they don't become a winner in this space. I'm referring specifically here to the metaverse space. It won't be for lack of trying or lack [laughs] of dollars.
