Meta's strategic investments in AI, particularly the Llama 3.1 model, and robust advertising revenue growth position it well for future success.

We are pleased to report that Meta Platforms (NASDAQ:META), our largest position in the fund, has delivered a remarkable performance, +450% since our November 2022 note. Our investment in Meta dates back to 2018, with an average cost basis of approximately $172 per share. Today, the stock trades around $535, reflecting a 3x return over the six-year holding period, equating to a 20% annualized return.

We would like to remind you that achieving these types of returns is never a straight path. From time to time, we might experience volatility - that's simply part of the investment journey. In fact, wealth creation and volatility go hand in hand. There's no escaping it; it's the "price of admission" the market demands. If you take a look at the chart below, you'll notice the drawdowns META stock has faced over the years, with 2022 standing out as a particularly challenging period, where the stock saw a 75% drop.

However, if we were to tune out the market's volatility (and the emotions that inevitably come with it) and focus solely on the fundamentals of the business with a long-term perspective, the results are quite impressive (see key performance data below). Over the course of our six-year ownership, the growth in revenue, earnings, and free cash flow per share closely mirrored the strong returns we achieved from the stock.

We were pleased with Meta's robust progress in its financial and strategic position. There are now 3.27 billion people that use at least one of their apps each day. In Q2, Meta achieved a 22% year-over-year increase in revenue, reaching $39.07 billion, and net income rose by 73% to $13.47 billion, surpassing analyst expectations. Key to this growth is their significant investment in artificial intelligence, particularly with the development of their Llama 3.1 model. CEO Mark Zuckerberg envisions Meta AI as potentially the most used AI assistant globally by year-end, although monetization will take time. AI integration has also bolstered their advertising revenue, which grew to $38.33 billion, demonstrating its effectiveness in optimizing their core business. Their "Family of Apps" core business posted a $19.3 billion operating profit in the quarter, which resulted in a very impressive 50% operating margin - we don't often come across businesses that put up those kind of margins. The company has also increased its capital expenditure forecast to $37-40 billion, underscoring its commitment to AI infrastructure. We believe that Meta's strategic focus on AI and open-source initiatives positions it well for future success.

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.