Key Morningstar metrics for Meta

  • Fair Value Estimate: $850
  • Morningstar Rating: ★★★
  • Morningstar Economic Moat Rating: Wide
  • Morningstar Uncertainty Rating: High

Meta META announced on Sept. 28 that it is launching a new enterprise platform. CJ Desai from MongoDB will join the company as Chief Enterprise Platform Officer to lead the effort. Meta stock dropped 4% following the announcement.

Why it matters: We think Meta’s shift to enterprise is unproven, as consumer products remain at the center of the company. That said, the enterprise platform keeps Meta’s revenue optionality open and helps it to secure different revenue channels to monetize artificial intelligence.

  • During Desai’s 10-month tenure at MongoDB, its Enterprise Advanced product saw accelerated growth, but we interpret that as a result of secular market demand. Before MongoDB, Desai also developed a rich enterprise go-to-market network as a leader at Cloudflare and ServiceNow.
  • Despite the high-profile addition, we continue to view ads, new products, and potentially subscriptions as much more enticing areas for AI monetization for Meta when compared with enterprise wallet share, an area in which the firm has little to no experience.

The bottom line: We maintain our $850 fair value estimate for wide-moat Meta. Shares currently look undervalued. The market’s negative reaction to the announcement signals that investors, much like us, are not super excited about Meta’s prospects in the enterprise market.

  • We don’t include any enterprise revenue in our fair value estimate, so we see potential enterprise sales as upside optionality. The overwhelming majority of Meta’s enterprise value still hinges on advertising, an area where we think AI-driven improvements can meaningfully grow cash flows.

Bears say: A clear cost of pursuing the enterprise platform could be increased operating expenditures as the firm builds enterprise sales and support teams without revenue to support them initially. We expect to get more details on these efforts in the firm’s upcoming quarterly earnings report.