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.
This undervalues Facebook's social network moat, which is honestly what they should be leaning into: a more interactive Yellow Pages / local groups directory.
That's much harder for competitors to disrupt, especially when you give people tools to amass and customize content on their pages. E.g. wiki's, info, etc.