The exaggeration of Facebook's demise
A lot is being made about Meta's (neé Facebook) troubles in light of its recent reversal of fortunes in the public markets. As the next company poised to break into the trillion-dollar valuation club (Apple, Alpha, Amazon, Microsoft, and Tesla the current members), the erasure of nearly a quarter of a trillion dollars of value in one day got a lot of attention even from people who never pay attention to these things.
It's been a few weeks since the beginning of Facebook's disastrous performance on the stock market. Starting February 3, Facebook's stock price has been on a steady march downwards. As of this writing, it's priced at about 45% off its 52-week high.
The precipitous drop then, on that first day, was chalked up to projections for a less than stellar earnings guidance for Q1. That's right; the blood wasn't shed because of poor performance: for Q4, they posted strong numbers, with $33.67B in total revenue, up 20% over the prior year. Facebook's net earnings were down, however, because costs quarter-to-quarter increased 38%. And the number of reported daily active users (DAUs in Facebook parlance) was 1.93B, up 5% from last year, but lower than the expected 1.95B. Meta/FB got punished because of that, along with projections that Q1 earnings are expected between $27 and $29 billion, off from expectations (but still yielding 3-11% year-over-year growth). Among concerns mentioned are that Apple's recent IDFA changes (i.e. users of Apple mobile devices are no longer easily trackable for targeting purposes) and unmentioned concerns about Android's similar moves portend weakening revenue prospects for Meta's core business, advertising.
Net net, the press -- financial, mainstream, and ad trades -- are all writing some form of obituary. The "6 reasons Meta is in trouble"1 or "Why Facebook might not recover this time" stories have all run.
But there are other things to note about where Meta sits right now.
Yes, there is mounting regulatory pressure from both sides of the political aisle domestically, and from the other side of the Atlantic internationally. Russia's recent invasion of Ukraine has bent the attention to social media in a different direction temporarily, but even that new direction runs adjacent to concerns over harmful disinformation that's plagued Facebook since at least the 2016 Presidential election. Yes, there are doubts about the turn towards the metaverse. Early punditry has swirled around the idea that Zuckerberg's turn to the metaverse is a turn away from his core revenue machine. Some have speculated that the metaverse is all sizzle and no steak. I myself have quipped that it seems to just be Second Life for kids.
But collectively people have a tendency to overestimate change in the short term and underestimate it in the long term. A shift to a metaverse footing, right or wrong, will be practically slower paced. In spite of the advertising and consulting business making grand gestures to be a part of it, meaningful early movement is more tepid and deliberate. [The overestimate is expressed by perceived failure in spite of not-yet-articulated expectations. The underestimate is expressed by the abandonment of those not-yet-articulated expectations before they have a chance to manifest.]
Remember that Meta's costs went up a whopping 38%? That isn't just because of inflation or changes in foreign currency markets. Meta is making investments in itself. In 2021, they spent $44.81B on stock buy-backs. In January they spent $19B on stock buy backs, paying between $300 and $340 a share. It's hard to believe that in January the mucky-mucks at Meta didn't know the forthcoming earnings report wasn't going to depress stock value. And yet they paid near top-of-market prices for shares anyway instead of waiting.
I'm reminded of the old says of Amazon. Amazon used to regularly post losses. Its first profitable quarter was Q4 2001. Its first complete profitable year was 2003. Amazon made it clear that its operating ethos was to put all its energy and resources into improving the company. Ceaseless improvement meant not only singular corporate focus, in meant funneling every dime back into innovation.
Now, Bezos was a far more charismatic leader and front man. Zuckerberg's human suit appears to always make him uncomfortable, and Sandberg's Marie Antoinette act makes her appear grossly out of touch. But they aren't stupid people, nor are the people who work for them. Doesn't mean mistakes haven't been, aren't being, and won't be, made. But it doesn't mean everything that is being done is a mistake.
Metrics based on user growth is a relic of the old days. Large increases in costs suggest development and innovation. Dealing with Apple's and Android's privacy changes shouldn't be a problem as Snap and Pinterest's recent positive earnings suggest a way forward in spite of them, including Facebook being able to take advantage of its own significant optics on vast landscapes of the digital media ecosystem. And it's possible Facebook is sandbagging itself a little with its projections of negative impact on growth coming from a number of areas (user time shifted to less monetized areas, targeting challenges, etc.)2 so that it can lower expectations or buy back more shares at a lower price.
I'm no apologist for Facebook as a platform -- I think grafting an algorithm that optimizes for time of engagement to negative content and disinformation is born from the banal evil of corporate apathy towards unintended consequences so long as the money keeps flowing -- but I think the media's enthusiasm for schadenfreude coupled with our collective need for a straw man to represent society's ills is the motive for much of Meta's coverage in the business press. For now, the company's financials are solid. Its quest to create and colonize the metaverse isn't entirely without merit if for no other reason than what they'll discover and develop along the way may have dramatic impact on the company and tech as a whole.
Now, if we turn towards Facebook's creepy and nefarious use of our data and how that could be used in the metaverse, THERE'S something to worry about...
