In their latest episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discuss Facebook’s Metaverse Is A Giant Leap of Faith. Here’s an excerpt from the episode:
Tobias: All right. Should we kick it off with the Facebook discussion since I’ve had people– [crosstalk]
Jake: Are you sure you’re openminded enough to tackle this?
Tobias: Yeah, evidently, I’m too closeminded to hear the Facebook discussion. So, let’s go. My mind is open. It’s relaxed– [crosstalk]
Bill: It’s the third time we’ve started talking about it now, but I think that whether or not short-form video inherently impacts what that platform is supposed to be, I think, is an interesting question. Not all that long ago, Zuckerberg said he wanted to lean into communities. He wants it to be social. The inherent nature of short-form video, I think, if you watch TikTok or something, it’s much, much closer to television media than some social media company. If you talk to advertisers– [crosstalk]
Tobias: Why is that? Because it scrolls past more quickly?
Bill: Yeah, I just think you’re just looking for– whatever it is, you’re looking for.
Tobias: You’re not looking at your friends. You’re looking at whatever is the most popular thing on the app at any given time.
Bill: Yeah, right. There’s nothing inherently social about it, I don’t think. It’s just trying to find the next viral thing on internet.
Tobias: Virality. Yeah.
Bill: Then, according to some advertisers that I’ve talked to, stories do not monetize newsfeed did, because people tend to just click through. You introduce video to it. I don’t know. Does Facebook become closer to YouTube, and then you’re reducing ad load, and then you’re pushing out the duration, and I think everybody’s always worried about the duration, and then you layer on $10 billion Meta spend that– I think there’s a legitimate question. Zuckerberg was objectively excellent at creating social. He was very good at executing defensive acquisitions.
Jake: Bubble transition. That was pretty good.
Bill: Yeah. Is he demonstrably successful creating a new category the Metaverse? I think it requires a lot of faith.
Tobias: Yeah, that’s a big leap.
Bill: Yeah. I don’t know. Maybe.
Jake: $10 million, that’s as good as money, sir.[chuckles]
Bill: Yeah. Look, I think you can say, “Well, you just NPV that and then who cares? Even write it down to zero. It doesn’t matter.” But then you’ve got the founder of a company that has bet the company future or at least from how do you get people motivated on his own dream. I think he deserves to. It is much in the same way that Munger can do whatever the hell he wants in Daily Journal, Mark Zuckerberg can do whatever the hell he wants in Facebook, but I just am much less convinced that it’s– I think the market reaction is not unjustified, is basically my take away. I know. Maybe– [crosstalk]
Tobias: A risk to it is that it ends up being like Myspace or something like that. No one goes there anymore. Then once it loses that, then it doesn’t come back, it seems.
Bill: Yeah. There’s no evidence that I have seen in data that I actually trust that supports the claim that people don’t go anymore.
Tobias: Even to the blue?
Bill: Yeah. Per user data is quite strong. Now, how does that shift? I don’t know. But I’m pretty sure App Annie measures US iOS usage. I think what people do and what they say they do are different things. I think that there’s a lot of reasons to go on to Facebook still, but if you’re no longer looking at the newsfeed and you’re interacting in a different way, instead you’re going to the Marketplace or– you really wanted to build out community. Community was this idea that Zuck and now, people are just going to like– When I go to Instagram, I scroll short-form video. I watch videos like Broncos and shit, and then people playing golf, and no one that I really know, I don’t scroll the feed.
Jake: You mean Broncos, what, the Ford Bronco, or the Denver Broncos, or–?
Bill: No, I like the new Bronco.
Bill: Ford Bronco World.
Bill: Yeah, I don’t know. I think Zuckerberg, he’s managed periods in the past where the stock has gotten sold off. He’s invested in the business in the past and come out on the other side, but now, he’s going against what Apple– Apple objectively, I think, hurt their position. I think you see it in Shopify’s numbers a little bit. Google is doing something similar and you’ve got the Metaverse. I don’t have a strong view. I thought it was cheap before. I own it. My man, Chris Cerrone, says, “Sell when management or the business ceases to be exceptional.” I’m not sure if Facebook is– it’s certainly above average. Is exceptional or above average a reason to sell? I don’t know, it might be. I’m reticent to say it’s cheaper now than it was.
Tobias: There’s other stuff in there like that– Tim Kavanaugh has got a comment here. “FB Marketplace crushes, but they don’t make any money off the transactions. Just eyeballs on the site. Don’t make any money on local transactions.”
Bill: Yeah, WhatsApp is undermonetized. I guess that I see why it’s cheap. I owned it going into the print. But I think that there’s real questions and I do think that some of the difference between where Apple was priced and how this is priced is, I’m not sure that Apple came out and said “We have the iPhone cash cow. What we’re going to do is we’re going to heap tons, and tons, and tons of money in resources on this tangential product that has perceptually nothing to do with our core business, because we don’t want to be beholden to a platform in the future.” I understand why the market thinks it’s a weak position to be in.
Tobias: I think that the disconnect that we had last week, the difference between what you’re saying is, you’re talking about the business and the current problems that have. I’m looking quantitatively at the valuation. Objectively, right now, there is a massive disconnect between what Facebook has done historically and where the stock is trading right now. It doesn’t necessarily mean it’s undervalued. It maybe that the stock price accurately reflects the future for Facebook, and that there is going to be this pretty substantial deterioration in the fundamentals. That’s entirely possible. I think that they’ve got a lot of runway, Zuckerberg is pretty smart. It’s still a pretty high-quality business. They’re making lots of money relative to what they have invested in that business and incrementally. I get that Metaverse is a totally different direction.
I think because there’s a difference between where the stock price is and where the fundamentals are right now, it’s worth taking a bet on. I don’t have a position in it. I can’t say whether I will or not in the future, because that’s a decision that has to be made yet, and I haven’t made it. But I think it’s a very interesting position where it is. It’s a very interesting opportunity, rather.
Bill: Yeah. [crosstalk] It could be.
Jake: Which is to say that if you could bet 30 of those that were not all correlated that you’d be pretty happy?
Tobias: Yeah, that’s the sort of approach that I’m taking. I want to have a portfolio of them– I’m less interested in what any individual one of them does. So, they’re smaller positions for me too.
Bill: Yeah. Look, some of my frustration in the conversation is I spend most of my day trying to figure these things out by calling people and talking to people and you said, “Well, this is macro. You can’t figure it out.” So, you basically said what I do is a waste of my time.[laughter]
Tobias: Yeah, that sounds bad. I didn’t mean it that way.
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