Meta results is out.
I subscribed to Steady Compounding for the research and earning analysis. There are a few nuggets of wisdom in its that I am trying to understand.
It says “CapEx spend is $9.52b on operating cash flow (OCF) of $9.7b. This leaves $0.18b as free cash flow (FCF)
What are those terms? And why does this matter?
CapEx are major purchases a company makes- usually expenses incurred to create future benefit.
OCF is the cash generated from normal business operations or activities. Shows investor whether a company has enough cash flows to pay its bills. It is different from revenue which indicates the amount earned, not necessarily received.
Put them side by side to give you a relative of how much is the spending for future vs current. In this case, Meta’s spending of $9.52 over the OCF of $9.7 only leave $0.81b as free cash flow, i.e actual amount cash at its disposal
Usually OCF signal the ability for the company to pay down debt, dividends and share repurchases giving company flexibility to facilitate growth. When the OCF continue to be low for an extended period, the company may cut back on paying down debt and dividends.
In this case, it's looking like there is a large bet on Metaverse and trading off accumulating free cash flow for future.