Meta Platforms – High EVA Shows Why The Premium Is There

This article first appeared on GuruFocus.

Meta’s 28.6% YTD performance and 15.5% multiple expansion isn’t irrational exuberanceit’s the market finally recognizing Meta’s exceptional economic profit generation. While competitors like Google saw multiple compression from 21.5x to 18.6x, Meta expanded from 23.8x to 27.6x. The reason: Meta generates $0.668 in economic value for every dollar of capital deployed (66.8% EVA margin), far exceeding Google’s ~45% EVA margin and industry averages around 30-35%. Combined with rising revenue per user (RPU), AI-driven ad efficiency improvements, and a balance sheet supporting 30%+ ROIC on incremental capital, Meta deserves to trade at a premium. This article explains why EVAnot revenue growth aloneis the lens through which to value Meta.

Economic Value Added (EVA) measures how much economic profit a company generates above its cost of capital. It’s calculated as: (ROIC – WACC) Invested Capital. Meta’s 66.8% EVA margin means for every dollar of capital deployed, the company creates $0.668 in value after covering all capital costs.

Why is Meta’s EVA so high? Three structural factors:

1. Capital-Light Revenue Model** Meta’s revenue requires minimal working capital or heavy infrastructure relative to output. Unlike manufacturing or retail, advertising revenue scales without proportional asset growth. Meta deployed $31.8 billion in capex YTD (primarily data centers), but generated $80+ billion in revenuea 2.5x+ revenue-to-invested-capital ratio. Google’s ratio is lower at ~2.0x, while traditional businesses rarely exceed 1.5x.

2. Low Weighted Average Cost of Capital (WACC)** Meta’s WACC runs approximately 8-9% due to: zero net debt (more cash than debt), equity cost around 9-10% given stable cash flows, and investment-grade credit profile enabling cheap financing when needed. Lower WACC directly expands the EVA spread. For comparison, mid-tier tech companies with leveraged balance sheets run 11-13% WACC.

3. High Incremental ROIC** Meta’s incremental ROICreturns on new capital deployedruns 35-40%. The $31.8 billion in YTD capex will generate an estimated $12-14 billion in annual EBITDA once data centers reach full utilization, implying 38%+ cash-on-cash returns before depreciation. This far exceeds the 8-9% cost of that capital.

Compare this to Google: similar revenue base, but ROIC around 25-28%, higher capex intensity from YouTube infrastructure and hardware products, and more competitive pressure in search from AI chat. Google’s EVA margin runs ~45%still excellent, but 20+ points below Meta.

The market’s multiple expansion from 23.8x to 27.6x reflects recognition that Meta’s EVA isn’t cyclicalit’s structural and expanding.

Revenue Per User (RPU) is the critical metric most investors underweight when valuing Meta. EVA expands when ROIC grows faster than revenue, which happens when revenue per user increases without proportional cost increases.

Recent RPU Performance:

– Q2 2025 Global RPU: $12.34 (up 11% YoY)

– North America RPU: $68.44 (up 9% YoY)

– Europe RPU: $21.56 (up 12% YoY)

– Asia-Pacific RPU: $5.89 (up 15% YoY)

This matters because Meta’s cost structure is largely fixed. Adding users in high-RPU regions (Europe, North America) requires minimal incremental spendingthe same data centers, same ad platform, same workforce. When RPU grows 11% while user growth is 5-6%, revenue outpaces cost growth by 2x, directly expanding EVA margin.

The AI-driven ad efficiency story amplifies this. Meta’s AI recommendation algorithms now drive 60%+ of content discovery on Facebook and Instagram, up from 40% two years ago. Better content matching ? higher engagement ? more ad impressions per user ? higher RPU without linear cost scaling.

Reels monetization exemplifies this. Reels now generates $10+ billion in annual revenue run-rate (management commentary Q2 2025), up from near-zero in 2022. The content was already being created (user-generated), the infrastructure was already builtMeta simply improved ad insertion algorithms. Pure incremental EVA.

Contrast this with Google, where search RPU has stagnated around $30-32 per user for three years as AI Overviews and chatbot competition compress click-through rates. Meta’s RPU trajectory is accelerating while Google’s plateausthis divergence explains the multiple divergence.

YTD Meta has deployed $31.8 billion in cash. The marketable securities have been left largely untouched, despite being included in the current assets. Liquid cash still sits at $12 billion providing Meta with further opportunity in capital deployment. Large parts of the cash used were for properties, namely data centers. For the remaining 6 months, inventors can expect Meta to deploy an additional $30 – 35 billion for data center investments, as outlined by CEO Mark Zuckerberg earlier this year. Given Meta has a high borrowing capacity, issuing notes to raise capital is one route to go down. In part this gives Meta an edge against competitors because it has a higher ceiling before it becomes too leveraged.

YTD total assets have grown 6.5% whilst total liabilities have grown 6.6%, the ratio between them remains high at 2.95x, providing Meta with plenty of legroom to increase leverage should it be necessary to gain a bigger edge.

The structure of the balance sheet remains cash-heavy with large concentrations of assets found in marketable securities and non-marketable equity investments. Debt management remains highly conservative with only possible because of the high net margin where profits now fund much of the necessary infrastructure investments. Asset efficiency has also improved, being 0.273 in 2024 and 0.304 in 2025 YTD, marking an 11.3% improvement.

This balance sheet structure directly enables Meta’s high EVA. With $58 billion in cash and marketable securities against $37 billion in total debt, Meta operates with negative net debt. This reduces WACC by 100-150 basis points versus a neutrally-leveraged peer, directly expanding the EVA spread. Furthermore, the $12 billion in remaining liquid cash provides dry powder for opportunistic investments without tapping debt markets. Google, by contrast, maintains higher debt levels ($28 billion net debt) and lower cash conversion, resulting in higher WACC and compressed EVA margins. Meta’s capital structure is a competitive advantage, not just a balance sheet stat.

Meta in comparison to peers such as Google and Salesforce, showcases the highest valuation by some margin in all categories. But moving further down, it’s revealed why this is the case. Future revenue growth is by far the highest at 19.06%.

Besides, the EVA or Economic Value Added for Meta is 66.8% which means for every dollar spent, Meta realises $0.668 in profits. Excess cash remains high since necessary operating cash is generally quite low, normally between 2 – 3% for Meta. Due to the large size, we can also use a lower WACC input. I expect EVA and EVA margin to rise further in 2025 and 2026 especially as more data centers are up and running. Heavy investments in AI to make workloads of employees more efficient should further drive up EBIT.

Meta’s 28.6% YTD performance and 15.5% multiple expansion isn’t momentum tradingit’s the market recognizing Meta’s exceptional economic value creation. With 66.8% EVA margin, 11% RPU growth, and 35-40% incremental ROIC on capital deployed, Meta generates more economic profit per dollar invested than any large-cap peer.

The 27.6x forward P/E seems expensive versus Google’s 18.6x until you anchor valuation in EVA rather than earnings multiples.

EVA Per Share Analysis:

– Meta EV: $1.44 trillion

– Invested Capital: ~$180 billion

– NOPAT (Net Operating Profit After Tax): $54 billion (TTM)

– WACC: 8.5%

– EVA: $54B – ($180B 8.5%) = $38.7 billion

– EVA per share: $38.7B / 2.5B shares = $15.48

At roughly $650 per share, Meta trades at about 42 EVA (based on ~$15.48 EVA per share). By comparison, Google at approximately $310 per share trades at around 26 EVA (assuming ~$12 EVA per share). The premium is not arbitrary it reflects the difference in growth trajectories. Over the past three years, Meta’s EVA has compounded at roughly 22% annually, while Google’s has grown closer to 8% per year. If Meta sustains even 15% EVA growth a conservative assumption given improving RPU trends and AI-driven efficiency gains today’s multiple begins to look like a fair reflection of durable growth rather than overvaluation.

The Premium Is Explained By:

1. **Higher ROIC on incremental capital** (38% vs 28%)

2. **Faster RPU growth** (11% vs 2%)

3. **Lower WACC** (8.5% vs 9.5%)

4. **Greater operating leverage** (38.9% net margin vs 27%)

Traditional P/E multiples obscure this. A company generating 66.8% EVA margin growing at double-digit rates deserves to trade at 25-30x earnings. Google’s 18x reflects its lower EVA and stagnant RPU. The market isn’t irrationalit’s correctly pricing economic profit generation, not just accounting earnings.

What Could Compress The Multiple:

– RPU growth decelerating below 5%

– Regulatory constraints limiting ad targeting (GDPR expansion)

– AI capex failing to generate projected returns

– Competitive pressure from TikTok eroding engagement None of these risks are imminent based on current data.

The premium valuation versus Google (27.6x vs 18.6x P/E) is justified when anchored in EVA rather than earnings multiples. As long as RPU continues growing high-single-digits and AI-driven ad efficiency compounds, Meta’s EVA will expand faster than revenue, sustaining the premium. Investors focused solely on P/E miss the economic profit storyand that’s why Meta continues outperforming despite appearing ‘expensive’ on traditional metrics.