Angelo Zino on META $16.7B Trial Settlement & Uncertain AI ROI Path

wherever you are. Welcome back to next gen investing. It's time to discuss meta platforms. And joining us for that is Angela Zeno. He is the senior equity analyst at Cfra research covering this name and many, many others. Angelo, good to see you. Happy Friday. There was a lot of question marks. A big cloud circling this company was sort of a legal overhang. Now they reached this tentative settlement. How important was that and what were your general takeaways from that decision? Yeah, and thanks for having me. So I'd say overall, listen, it was it was a huge deal in the fact that it removes a major overhang for the stock. I think, you know what? You never know when it comes to the Googles and Metas and all these other kind of social media or you know com services companies out there is you get the risk of regulatory overhang and that could potentially last for years and years. It's obviously something we saw alphabet had to contend with. Ultimately it worked in their favor. But nonetheless, if you're an investor, it's not something you want to sit around with and watch. So the fact that we kind of got some sort of resolution is the most important part of this when we kind of think about now also, you know, implications from it overall. Listen, I think you're talking about about 1213 billion in terms of the settlement with an additional potential 5 billion, depending on what some of its competitors do out there. That's peanuts, especially if you kind of start thinking about that over a ten year span and the fact that, you know, they're going to accrue about 10 billion of it here in Q3. So that's now in the past, there are still going to be regulatory issues, I'm sure, as we continue to move forward. But this one was the big one in terms of the child safety case. So I think that's the most important thing to take away from this is the fact that, hey listen, meta addressed the issue. They were very responsible adults when it came to it. They actually looked like the good guys at this point in time, where a lot of their competitors, which have yet to respond, don't look as good as meta at this point in time. Angelo, what's your assessment about where meta is currently in relation to its peers in this AI race? I thought we started to get some information that almost looked like it was pulling back, you know, floated that they might look at neo cloud type operations with their excess capacity, that there was some internal rumblings that they weren't as far along as they wanted to be. But then the last time we heard from them in earnings, they were still spending a ton of money. They depleted a lot of their free cash flow. So it was sort of like they have this off ramp. I'm just not sure they've they've decided to take it yet. Where do you assess things? Yeah, I think I think you kind of laid it out pretty well in the sense that we're kind of waiting. It's a wait and see. When it comes to Zuckerberg at this point in time. I think, you know, also when you look at this week, one important if you actually look at Nvidia's results, it almost kind of points to the fact that a lot of these hyperscalers, plus meta, probably going to end up spending more than we previously anticipated in 2027, despite the fact that the numbers in terms of CapEx continues to go up, probably not high enough at this point in time. So in our view, over the next six months before they give out that that 2027 CapEx number in late January or early February, we need to get a better understanding of what meta is thinking about in terms of their CapEx spend, in terms of what they want to do with their AI plan. And the way we look at it, they've done a magnificent job in terms of monetizing AI on their core business. They're starting to see and roll out some offerings in terms of non-advertising opportunities. And we like that we need to start seeing kind of some of the, the, the revenue momentum from there. But that's going to take time where they can immediately generate revenue, obviously, is selling some of that compute out there, whether it be to Neo Cloud or others. So we'll kind of we'll see how that plays out. But I mean, if you're if you're an anthropic out there, I'm sure they're more than happy to buy some potential capacity for from meta. So we need to hear that from Zuckerberg. We need to see a plan of action. Hopefully we get it on the Q3 earnings call because we didn't get it after Q1. We didn't get it after Q2. And I think at this point in time, there's some sort of time, you know, time is at the essence because we need to get a game plan before that 2027 CapEx number comes out. Angelo, real quick, before I let you go, you guys got strong buy. You got the 750 price target. Is that on the AI stuff or is that just a misprice and evaluation opportunity? It's both. The valuation makes a lot of sense to us. I mean, they're still generating the cash flow from operations. And you know, when we kind of think about the opportunity ahead, we do think the street is underestimating the AI monetization potential. So it's a combination of the fact that, hey, listen 13, 14 times on a 28 basis, plus the upside, if they actually come out with some decent monetization initiatives, we think has the potential to really drive some upside here for the shares. Angelo, it's always a pleasure. You have a wonderful weekend and we'll catch up soon. Angelo