Introduction
Cash flow statement analysis is crucial to understanding Meta Platforms Inc.’s spending. By delving deeper into each section and finding relevant corporate news, it is feasible to pinpoint areas of weakness and potential. Examining Meta Platforms Inc.’s cash flow statement reveals how much focus is placed on acquisitions of other companies, research and development, debt repayments, and share repurchases.
Overview of the Statement of Cash Flow
The statement of cash flow is an essential part of financial reports made by organizations. Here, one can observe the company’s cash flows from operating, investing, and financing activities and see capital expenditures, debt spending, and stock repurchase. In Meta’s case, one can see a decreasing pattern in free cash flow, with 2020 results being $23,632,000 and free cash flow in 2022 being $19,044,000 (Yahoo Finance, n.d.). Reduced free cash flow may indicate significant capital expenditures by the business (Kieso et al., 2019). The company’s reduced results can be attributed to its significant investments, debt repayments, and share repurchases.
Analysis of the Cash Flows from Operating Activities
When delving deeper into the analysis of Meta’s cash flow statement, it is crucial to consider the operating activities of the corporation first. Net income plays a crucial role in discussing the influences in this section (Kieso et al., 2019). In other words, cash flow from operating activities will fall if costs rise or revenues drop (Kieso et al., 2019). As seen in Table 1, the operating cash flow of Meta increased in 2021 but dropped by 12% in 2022.
The negative result of Meta in 2022 has a reasonable explanation connected to the company’s earnings. For the final quarter of 2022, the corporation recorded a total revenue of $32.17 billion, a 4% decrease from the previous year (Spangler, 2023). Meta stated that, based on constant currency, quarterly earnings would have climbed by 2% (Spangler, 2023). Revenue dropped by 55% to $4.65 billion as expenses increased by 22% annually (Spangler, 2023). Meta had already issued a 10% sales drop warning for the fourth quarter (Spangler, 2023). Therefore, the reason why the corporation’s operating cash flow decreased is due to the decreasing earnings.
Table 1 – Operating Cash Flow.
Note. Yahoo Finance, n.d.
Analysis of the Cash Flows from Investing Activities
Another area that must be considered is cash flow from investing activities. Evidently, the bigger the figure in this section, the more investments the company made by purchasing various assets or acquiring other companies (Kieso et al., 2019). In the case of Meta, several investment areas can be observed, such as acquisitions of innovative start-ups and research and development. For example, in 2021, Meta reported that while growing its operations, its Reality Labs division—which produces smart glasses, augmented reality glasses, and other unreleased products—lost over $10 billion (Isaac, 2022).
The CEO, Mr. Zuckerberg, envisions the metaverse, a next-generation network where users can share ideas and simulated worlds across both software and hardware systems, and these technologies are essential to realizing his vision (Isaac, 2022). Meta’s quarterly profits decreased by 8% to $10.3 billion the same year due to spending, despite a 20% increase in earnings to $33.7 billion over the same timeframe (Isaac, 2022). As a result, one can simultaneously see how much spending and revenue decline affect the cash flow from operating activities and cash flow from investing activities.
As seen in Table 2, Meta reduced its investment spending in 2021 while having significant cash flows in 2020 and 2022. To create the foundation of these hyper-realistic realms, which demand that millions of users have lasting and synchronous interactions in both real and virtual surroundings, companies like Meta, Microsoft, Apple, Nvidia, and others have been competing with one another (Murgia, 2021).
As a part of its competitive strategy, Meta purchased artificial intelligence startup AI. Reverie in 2021 and integrated the company into its Reality Labs division, which is in charge of creating a shared virtual environment (Murgia, 2021). According to Meta, the collaboration would boost the business’s capacity to create synthetic or virtualized representations of real-world data. Consequently, the cash flow statement reflects such significant purchases, precisely the cash flow from investing activities.
Table 2 – Investing Cash Flow.
Note. Yahoo Finance, n.d.
Analysis of the Cash Flows from Financing Activities
Moving forward, an analysis of the section regarding financing activities is crucial. A negative cash flow from financing operations means that over the specified period, the business has spent more money on borrowing than it has earned (Kieso et al., 2019). Table 3 demonstrates that spending in this area has increased. One potential reason for such a change is debt repayments. In 2022, there was a $10 billion completion of Facebook’s parent company, Meta Platforms Inc.’s first-ever bond issue (Balu & Ramakrishnan, 2022).
Then, after looking at its debt repayment in the cash flow statement, one can see that while $604,000 was spent in 2020, $850,000 was used to repay debt in 2022 (Yahoo Finance, n.d.). According to the sources, this might provide further financial flexibility as it attempts to finance costly projects, like its augmented reality metaverse and Reels short film offering, when its cash reserve is running low (Balu & Ramakrishnan, 2022). Thus, with such an approach, Meta could finance some of its more costly projects.
Another reason for such changes in cash flows is stock repurchases. The company plans to use the proceeds to finance investments and stock buybacks to restructure its operations (Balu & Ramakrishnan, 2022). While the repurchase of capital stock in 2020 was $6,272,000, in 2022, the figure grew to $27,956,000 (Yahoo Finance, n.d.). Therefore, both stock repurchases and debt repayments contribute to increases in financing spending.
Table 3 – Financing Cash Flow.
Note. Yahoo Finance, n.d.
Change in Cash and Cash Equivalents
Finally, changes in cash and cash equivalents must be considered. Based on the data in Table 4, Meta’s cash decreases. When more outstanding funds flow out of the company than coming in, the business has a negative cash flow (Kieso et al., 2019). In Meta’s case, such results can be explained by macroeconomic trends. The strong dollar is putting some pressure on Meta’s income, as it does for many multinational corporations, as sales in other currencies are less in dollars (Paul & Balu, 2022).
Given present exchange rates, Meta anticipated a 6% disadvantage in sales growth in the third quarter (Paul & Balu, 2022). The operating profit margin dropped from 43% to 29% in the second quarter due to a substantial cost increase and a decline in sales (Paul & Balu, 2022). Moreover, it is noteworthy that end cash positions in Meta decreased, with 2020’s results being $17,954,000 and 2022 demonstrating results of $15,596,000 (Yahoo Finance, n.d.). Thus, due to heavy spending and unfavorable economic conditions, the company experiences poor results in cash positions.
Table 4 – Changes in Cash.
Note. Yahoo Finance, n.d.
Summary
Overall, after reviewing the cash flow statement of Meta Platforms Inc., one can see how much emphasis is put on investments, debt repayments, and share repurchases. In 2022, Meta’s operating cash flow decreased by 12%, whereas it had climbed in 2021—the company’s declining earnings caused the decline in operating cash flow. The cash flow from investing operations is another area that needs to be considered. Meta has made investments in several areas, including research and development and purchasing creative start-ups.
Examining the section on financing activities is essential going ahead. Repayment of debts is one possible cause of this shift. Stock repurchases are another factor contributing to these variations in the cash flows. The corporation intends to restructure its operations by financing stock buybacks and investments with the proceeds. Lastly, adjustments to cash and cash equivalents need to be considered. The company’s cash positions suffer from excessive spending and adverse economic conditions.
References
Balu, N., & Ramakrishnan, S. (2022). Facebook parent Meta set to raise $10 billion in bond debut. Reuters. Web.
Isaac, M. (2022). Meta spent $10 billion on the metaverse in 2021, dragging down profit. The New York Times. Web.
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2020). Intermediate accounting IFRS (4th ed.). Wiley.
Murgia, M. (2021). Facebook to build metaverse with start-up that had US military contracts. Financial Times. Web.
Paul, K., & Balu, N. (2022). Meta posts first-ever revenue drop as inflation throttles ad sales. Reuters. Web.
Spangler, T. (2023). Meta revenue falls 4% in Q4 as Facebook hits 2 billion daily users, stock pops 20%. Variety. Web.
Yahoo Finance. (n.d.). Meta. Web.