• November 30, 2022

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With this afternoon’s earnings report, Meta confirmed every criticism hurled against them. It was painful to watch. It’s a tough time for ad supported businesses. Google and Snap had their time in the barrel earlier this month, but in many ways, Meta’s news is much worse. They have growing competitive and regulatory pressures, and an historic commitment to what many consider a Metaverse money pit. Meta stock started the day at 132 and hit 104 after the earnings report. The stock is now trading at its 2017 price.

Are things really this bad, or is Meta, one third its price a year ago, a screaming buy? The company has a fantastic though aging family of social media brands in Facebook, Instagram, and WhatsApp. Each reaches more than two billion people. Together they bring in $120 B a year, with $4.4 B in net profit this quarter alone. Notably, this is 50% less than last year. The Apple ad-tracking changes really took a bite out of them.

This is an enormously complicated international business with incredible influence and power. Naturally, investors want to hear more about this and how its enormous power can overcome serious headwinds. Instead, investors heard a lot about how those dwindling profits will be spent on something they don’t understand (VR) and something that doesn’t exist (the Metaverse).

Meta Reality Labs had a 49% drop in revenue due to slowing sales of its flagship product, the Quest 2. Not a confidence builder. Overall, the unit had an operating loss of $3.7 B for the quarter. At this point, Meta is taking all the dough it’s still making ($4.4 B this quarter) and spending it on the Metaverse ($3.7 B). Because investors don’t have voting power at Meta, and the company’s board is hand picked by the founder, the only way investors can vote is with their feet.

Zuckerberg’s focus on the Metaverse, and seeming neglect of a declining social media empire, is another challenge the company is now facing. It has also got to create tough choices for Meta’s employees. If they joined the company after 2017, they are now holding underwater stock options. They, too, can vote with their feet. Even in a down economy, great engineers are always in demand.

Believe it or not, despite these seemingly catastrophic results, I come more to praise Mark Zuckerberg than to bury him. He is taking an historic business risk, trying to will these new platforms into existence. The whole world is obsessed with the Metaverse now. Because of him. What a story. You could not make this up. The best part is that no-one knows what’s going to happen. Investors hate that.

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