Thread: Capex and FCF in big tech
1/ and basically have maintenance capex while and really ramped up capex in last 3-5 years. The capex to D&A ratio for FB and GOOG in 2019 was 2.6x and 2.2x respectively.
1/ and basically have maintenance capex while and really ramped up capex in last 3-5 years. The capex to D&A ratio for FB and GOOG in 2019 was 2.6x and 2.2x respectively.
2/ If the ratio were 1.5x i.e. a normal growth capex cycle instead of hyper growth capex cycle, and would be trading around 's FCF/EV multiple which is incredible given starkly different growth profile of AAPL vs FB/GOOG.
3/ Assuming 1.5x capex to D&A in 2020 (just assumption, already guided $17-19B capex in 2020 which would be again more than 2x D&A), FB would be trading at 18.5x FCF multiple. would be at 20.5x whereas is trading at ~20x.
4/ Of course, it is possible is wildly overvalued and and just look much better from valuation perspective when compared to AAPL. But paying ~20x FCF multiples for companies that can grew and likely to grow earnings 20-25% don't seem crazy at all.
5/ So what exactly invests so much money in? Primarily buildings and network equipment. In the last 2 years alone, FB added $6.3B in buildings (useful life 3-30 years), and $9.0B in network equipment (useful
life 3-20 years), which is now more than ~40% of net PP&E balance.
life 3-20 years), which is now more than ~40% of net PP&E balance.
6/ Here's what the PP&E table in 2019 looks like for
7/ There are only so many buildings and network equipment you need, and it is likely that is likely to rationalize its capex in 2-3 years which can be inflection point for FCF generation. The stock may appear much cheaper than it is right now.
