Facebook (Meta) Lesson 2: Accounting Inconsistencies and Consequences

In this session, I use Facebook's most recent (and disappointing) quarterly earnings report to talk about accounting inconsistencies in categorizing expenses (into operating, financing and capital) at firms, and how this mis-categorization affects their profitability, return and debt measures. I present templates for correcting for their inconsistencies, and how these corrections can affect the value that we attach to these companies and the pricing of these companies. With Facebook, capitalizing R&D and their Metaverse investments, not only increases operating margins substantially, but also makes it clear that the drop in margins at the company in the last year or two are almost entirely due to Facebook's massive R&D and Metaverse investments. Whether you view that is good or bad depends in large part on whether you trust Facebook (and Zuckerberg) to deliver earnings and growth from the Metaverse, and that mistrust can be attributed to the company's incapacity to explain how the tens of billions of dollars will pay off over time.
Slides: https://www.stern.nyu.edu/~adamodar/p...
Blog Post: https://aswathdamodaran.blogspot.com/...