Chain of Thought for DCF Valuation of META Stock To compute the Discounted Cash Flow (DCF) value for Meta Platforms, Inc. (META), I followed a standard two-stage DCF model. This involves projecting free cash flows (FCF) over an explicit forecast period (5 years here, common for mature tech firms), calculating a terminal value for perpetuity, discounting everything back to present value using the Weighted Average Cost of Capital (WACC), and adjusting for net debt to arrive at equity value per share. All figures are in USD billions unless noted. Data is sourced from recent financial reports and analyst consensus as of October 30, 2025.
- Gather Key Inputs:
- Base Year FCF (2025): Analyst consensus points to ~$57.6B as the latest trailing twelve-month (TTM) FCF, which aligns with Q3 2025 results (quarterly FCF of $10.62B) and full-year projections amid high AI-related capex (~$70-72B).
- Growth Rates: Explicit period (2026-2030): 20% for first two years (reflecting strong Q3 revenue growth of ~22% YoY and analyst forecasts of 19%+ for 2025 overall), tapering to 15%, 12%, and 10% as maturity sets in. Perpetual growth rate: 3% (conservative long-term GDP-aligned estimate for a large-cap tech firm; some models use 4%, but this avoids over-optimism).
- Discount Rate (WACC): 9.5% (blended from recent estimates of 9.5-10.1%, accounting for META's low beta, cost of equity ~10%, and minimal debt).
- Net Debt: Total debt $49.56B minus cash & equivalents/securities $44.45B = $5.11B net debt (Q3 2025 balances).
- Shares Outstanding: 2.52B (diluted, end-2025 estimate after buybacks).
- Project Explicit-Period FCFs (2026-2030):
- Start with 2025 FCF = $57.6B.
- Apply growth: 2026 = $69.12B (20%), 2027 = $82.94B (20%), 2028 = $95.39B (15%), 2029 = $106.83B (12%), 2030 = $117.52B (10%).
- Calculate Present Values:
- Discount FCFs: Sum of PV(FCFs) = $353.91B.
- Terminal Value (2030): FCF_{2030} × (1 + 3%) / (9.5% - 3%) = $117.52B × 1.03 / 0.065 ˜ $1,862.48B.
- PV of Terminal = $1,862.48B / (1 + 9.5%)^5 ˜ $1,182.90B.
- Enterprise Value (EV) = PV(FCFs) + PV(Terminal) = $353.91B + $1,182.90B = $1,536.81B.
- Derive Equity Value per Share:
- Equity Value = EV - Net Debt = $1,536.81B - $5.11B = $1,531.70B.
- Per-Share DCF Value = $1,531.70B / 2.52B shares ˜ $608.
This DCF suggests META is fairly valued or slightly undervalued if the current market price is around $650-700 (based on recent forecasts), but sensitivity to growth (e.g., higher AI-driven revenue) or lower WACC could push it to $700+. Assumptions like FCF margins stabilizing at ~33% historical median are embedded; actuals may vary with capex trends. For transparency, the math was executed via:
YearProjected FCF ($B)Discount Factor (9.5%)PV of FCF ($B)|
| 2026 | 69.12 | 0.9138 | 63.16 | | 2027 | 82.94 | 0.8355 | 69.28 | | 2028 | 95.39 | 0.7634 | 72.85 | | 2029 | 106.83 | 0.6976 | 74.50 | | 2030 | 117.52 | 0.6373 | 74.92 | | Sum PV(FCFs) | - | - | 353.91 |
Final DCF Value per Share: $608 (as of October 30, 2025 data). This is an estimate; professional valuations often use 10-year horizons or scenario analysis. |
