In no other company would a CEO be allowed to essentially go rogue like this. All companies with dual-class shares will eventually trade at a discount, this is FB's time.
I don't even think the Metaverse is a bad idea, but applying the SV mentality of: we just need to lose more money than anyone else won't work, that isn't how the real world works unless you have someone even dumber to pay you off (i.e. stupider VC fund, IPO)...FB is top of the food chain, no-one else is coming in on this.
They either need to slow the cash burn (the numbers are just ludicrous) or spin the company (not possible).
This kind of thing happens and the discount can last literally decades. With dual-class share, there is no way to close it and most investors know this so they are just selling.
I will say it again: dual-share class isn't smart, the market isn't dumb, investors aren't stupid, it will go wrong eventually and everyone else is paying the price for Zuckerberg's own desire for self-aggrandizement.
Mark is facing innovator dilemma. Should he pivot the company to a new field while he still has funds or just wait until the zombification finishes his baby off? Maybe the way he chose is not optimal, maybe Reality Labs should be completely ambidextrous without any link to FB outside funding?
Right, but the problem would still be that Zuckerberg controls both so would still overfund VR. You could spin off, but it is losing too much. Zuckerberg could buy out, but then you have a CEO splitting his time with his side piece...and if that takes off, then you look like a complete asshole for stiffing public shareholders.
To be clear though: he has created this situation. If he lost a reasonable amount of money, none of these questions would be asked. Anything north of $10bn is just madness, $5bn is bad, $2-3 is probably about right. It is all sustainable within the current situation, he just has no-one telling him how bad this all looks (what it looks like now is the opposite of the final scenario: man who is worth hundreds of billions rinses public shareholders for his fever dream VR fantasy).
Innovator's dilemma is all operational, so it should be separate from FB. Capital allocation choices are distinct from all this (the innovator's dilemma exists because CEOs are usually terrible investors/capital allocators, there are maybe 20 CEOs who have ever run a public company who can allocate capital well, Zuck actually had a decent rep before this because of his acquisitions but he is torching it with VR, which is clearly very far from commercial revenue).
> In no other company would a CEO be allowed to essentially go rogue like this.
I wonder if Meta would be going all-in on a VR system that nobody seems to want if Sheryl Sandberg were still around. She seemed like the only one who could say no to MZ. Granted, there are lots of other factors (TikTok, recession, Apple's privacy changes), but it is an interesting coincidence.
No, it doesn't happen often. Because, by definition, it can only happen with dual share class. If a CEO goes rogue then they lose their job. Unless Zuckerberg fires himself, the only way to get off the train is by selling the shares.
Uh, the federal government is always at the top of the food chain in all R&D tech. They pioneered VR before Meta. They continue to fund VR. Zuckerberg is just acting like a government research investor. Which is, spend money on an idea that doesn't seem like it will immediately bear fruit.
This is how literally ALL the technology you use was developed. Huge, multi-decade spending on R&D until it works. Literally any technology you can think of.
Two mistakes: one, survivorship bias, lots of people spent money on tech that didn't work. And two, the problem isn't that he is spending money, it is that he is spending money on something that continues to show no revenue. The point of spending money is not the technology, it is to get a return of more money later.
I can't think of any technology that required multi-decade spending on this scale before revenue, fusion? If something needs multi-decade spending, it is either a scam or uninvestable.
VR had 50 years of R&D before they hit markets. Computers had 50 years of R&D before they hit markets. What exactly are you talking about? You are discounting the largest buyer in the economy, the federal government. By the way, the federal government spends more on R&D than all VC combined.
VR strategy fails, acquisitions stop due to regulatory issues, loses ad marketshare to Apple, TikTok continue to eat its lunch. As a result, stock gets even lower.
There you have it. Is this a very strong argument? Probably not, no, but it's a possibility.
Facebook's revenue could cut in half and they could easily make more profit than they did this quarter just by getting rid of reality labs. The only thing holding the stock back at this point is Mark and I guess the fear that no one will use facebook 20 years from now.
How do you reckon that? Back of the envelope, their profit in your scenario should be about (revenue - COGS) / 2 - (fixed costs - fixed cost of reality labs)
Their revenue was $27.5B with COGS $5.7B vs. fixed costs of $16.3B. The cost of reality labs was $3.8B, let's assume for simplicity that it was all fixed costs. Plug those numbers into the formula, and it'd be a $2.5B loss. If their revenue was cut in half, they'd need to slim down massively in the non-RL segments to even break even, let alone be more profitable than now.
Facebook still has 3 billion daily users. For all the doom and gloom it’s doing fine. Yes it’ll probably slowly fade into history but that will take decades.
That doesn’t make for a compelling buy signal. In principle, you should buy a stock because you believe you will be repaid in dividends over time. If the ship is sinking, even slowly, those dividends are not terribly appealing.
Facebook seems to be 90% ads for me nowadays. There's only a few groups/people whose updates I'd like to see and the constant irrelevant click bait ads aren't worth the effort.
For the past 7+ years Facebook has continually made its product worse for its users. They are making the same type of product decisions today, so they will continue to bleed users.
The question you should be asking is what are the company's earnings growth prospects going forwards, and how does that compare to the stock's current valuation.
The argument is all stocks were at all time highs last year other than physical Covid related stocks (hotels, etc).
Everything was taken back to pre Covid levels. So if you can imagine we are back in 2019, whatever Facebooks price was, plus declining user base, and the Apple fuck you, it has room to drop.
Market prices are a reflection of the economy, they are not themselves the economy. Trying to use the reflection to predict the reflection is self referential- even though lots of people do it, which is why the market often behaves like it's huffing paint. I think it's better to base assessments on base reality.
Example: the share price of K-Mart was 134 dollars in 2007. Now it's 15 cents. And people were buying the dip all the way down. Think it will come back?
After all, no company lasts forever. Eventually they all go to zero and are replaced by some other company. That's why buying the dip just because it's a dip is a fool's game.
How is this an argument? Price is taking into consideration the dividends. Also Cisco didn’t start paying dividend until 2011, when CSCO was trading at $20 or so.
If you think that $69 is a good price to pay for CSCO I’m happy to sell you as many stocks as you want.
Point is, you as an investor need to add the total of dividends over time to the current price and only then compare against your buy price to see if you're ahead or not.
[1] Due to macroeconomic condition marketing spend by companies is decreasing -> Lower revenue
[2] New entrants in the social ad-tech market (Apple, Uber, Netflix, Youtube, etc) take a slice of a shrinking market
[3] Privacy regulations shrink market further
So while they are still insanely profitable for their core business the growth story is over.
>Can someone make an argument against buying at this price point?
The only way I see them recovering is regulatory action, either:
1. The White House bans tiktok, (hopefully, in FB's case) shifting TikTok's eyeballs to Instagram.
2. The White House forces Apple to undo informed tracking consent.
Personally, I believe Facebook was digging their own grave in 2010 and handled the privacy problem incredibly poorly. While consumers were unlikely to stop using Facebook, it left them wide open for Apple to kneecap them and now Zuckerberg's, likely correct, concerns that Apple doesn't really care about privacy falls completely on deaf ears.
Just like when Trump brainfart'ed and told Germany that Russia was going to wield its energy dependency as a realpolitik ploy, and was called a idiotic shill for it?
And that's exactly what happened...?
The president, orange or grey, is privy to information we are not.
Tiktok is a national security threat; orange-man-bad isn't a staple in any useful political discourse.
Well, if your judgment of fair value is driven by relative price alone, and not fundamentals, you can believe whatever you want about what’s cheap or expensive.
If you look at history, everything converges back to fundamentals in the long run; as many tech investors are starting to find out.
But to answer more directly, the current price is only good value if Facebook can grow its earnings over time. Right now they’re shrinking.
Companies with shrinking earnings tend to get single digit multiples
In no other company would a CEO be allowed to essentially go rogue like this. All companies with dual-class shares will eventually trade at a discount, this is FB's time.
I don't even think the Metaverse is a bad idea, but applying the SV mentality of: we just need to lose more money than anyone else won't work, that isn't how the real world works unless you have someone even dumber to pay you off (i.e. stupider VC fund, IPO)...FB is top of the food chain, no-one else is coming in on this.
They either need to slow the cash burn (the numbers are just ludicrous) or spin the company (not possible).
This kind of thing happens and the discount can last literally decades. With dual-class share, there is no way to close it and most investors know this so they are just selling.
I will say it again: dual-share class isn't smart, the market isn't dumb, investors aren't stupid, it will go wrong eventually and everyone else is paying the price for Zuckerberg's own desire for self-aggrandizement.