Facebook Inc.

[Wildreamz]

Hi Weijian,

This is a complex matter and need to be seen in context.

IMHO, Facebook's recent name change is motivated by many issues.

(1) It's a distraction for their many scandals and poor reputation of the "Facebook" brand name. It's not the first time Facebook used this tactic: IGTV (failed) -> Reels; Libra (failed) -> Diem; Calibra (failed) -> Novi

(2) Facebook did it from a position of weakness. They have tried, but failed to gain traction to create a social media platform for younger audiences. IG been losing ground with younger users to other platforms such as TikTok, Snapchat, and YouTube in the last couple years: https://www.socialmediatoday.com/news/ne...-a/610376/

This will start to seriously impact both top and bottom line growth, in a few years, as the demographic of their monetizable user base change. 

(3) Apple's new privacy policy has hurt their cross app/website tracking, limiting the effectiveness of their targeted ads: https://www.macrumors.com/2021/10/26/app...-earnings/ 

Facebook wants to create an own it's own platform (like Google's Android and Apple's iOS); hence, they sought to create this, VR-first platform; which they hold an advantage, since they acquired Oculus a while back.

However, the "Metaverse" trend has started, way before Facebook did the name change. Most notably with Minecraft and Roblox: https://debugger.medium.com/the-metavers...9c89ed8ba2

Unlike traditional gaming with limited user freedom and shelf-life. "Metaverse" games focuses on User-generated Content (UGC). Where users are not only able to interact with in-game Universe and other users on the platform. They are also able to freely create their own UGC, and even monetize them. They can monetize their creations directly, like they can with Roblox and Minecraft, or indirectly through YouTube and Twitch for other games. 

These gaming Metaverse platforms are their own ecosystems, users spend time creating content on it, and spend time with one another on it through their digital avatar (digital "co-experience"). I believe, due to technological advancement, and the pandemic, such platforms has reached critical mass of adoption. As users on such platforms increase, game developers and content creators (Youtube and Twitch streamers) also flocked to these platforms, improving the content variety and quality (ie flywheel effect): https://digitalnative.substack.com/p/rob...e-building 

Also, brands are also starting to flock to these platforms as they are creating their own content/virtual "experiences" on it, and are getting much better engagement compared to traditional advertising: https://www.marketingsociety.com/empower...know-about

So the emergence of the Metaverse (interactive 3D digital worlds where people spend long duration of their time on) is actually a competitive threat to Facebook. As they both steal younger users away from Facebook's traditional, passive-consumption social media platform; as well as advertising dollars.

This is Facebook's defensive attempt to pivot themselves away from their maturing social media business that is facing increasing competition and regulatory scrutiny; to a more burgeoning business of the "Metaverse" with lot's of potential growth ahead of it. 

IMHO, Facebook do not understand the Metaverse, nor do they understand what users (especially younger users) want. Mark Zuckerberg is a great businessman, but not the best innovator, nor leader (many high-profile founder-employees have left Facebook over the years, including Kevin Systrom, Brian Acton, and more recently David Marcus). The last innovative product they made was Facebook Marketplace. They will ultimately fail in their attempt to create a VR-First Metaverse that users (especially younger users) actually care about, and will spend time on. 

Just my 2c. I have only briefly scratched the surface of the Metaverse trend, and I might be completely off base with my assessment of the situation. And as a Roblox investor, I'm of course biased.

[BRT]

time and again i've been super impressed by facebook's ability to execute in the face of so much distrust and hate. and yes they have had failures as some mentioned above but on balance i have to hand it to the team. i think there's already a kind of facebook universe represented by their users and the strong grip on the digital advertising market they have. i recall (was it last year?) that for a month or two there was some boycott of facebook advertising by big brands (unilever, p&g etc) for cant-remember-what-social-issue and basically facebook's revenues barely budged. the existing facebook universe is a differentiating factor that other big ambitious players dont have and perhaps they are trying to morph that into a metaverse? maybe that was attempted through occulus/horizons having to use facebook logins?

on the Metaverse, a tad idealistic but i would like to see the facebook, roblox, minecraft etc metaverses (small m) merge and form a Metaverse (big M) someday. that would be cool, and maybe ownership issues would add some points to the decentralization argument. in any case, whether Metaverse or metaverse, the surface area for commerce increases and that represents growth and would be overall a good thing for these companies.

[Wildreamz]

The Next Generation of Social Networks: Games, Roblox, and More | Andrew Chen | The Tim Ferriss Show


A nice little introduction about the Metaverse, ie the next generation of social networks.

[weijian]

The metaverse doesn't look like a thing for boomers and millennials. It doesn't even seem possible for Gen Z. But it could be possible for the next generation after Gen Z.

I've already lived in the metaverse, and it was a little sad

Alex and misterwrong have something in common. Neither is here to be the real versions of themselves, working real jobs, tied to real constraints and obligations. If the real-verse had everything they wanted, they wouldn't need a meta one.

https://www.businesstimes.com.sg/technol...little-sad

Philip Rosedale, Founder of 2nd Life talking about what he would do differently if he had a 2nd chance at 2nd life.

Bill, the alfa VC, talking down on Meta and how different he thinks the metaverse should be.

Bill Gurley and Philip Rosedale - Back to the Future

https://overcast.fm/+Lzu2oIkeA/2:35

[Wildreamz]

Facebook stands to shed more than $200 billion in market value after rough earnings report
https://www.marketwatch.com/story/meta-s...1643837086

In first quarterly report as Meta, competition and Apple’s iOS changes are blamed for a holiday-earnings miss and weak first-quarter guidance

---

Note that Google popped just yesterday, on 32% revenue growth; without using Apple IDFA and supply-chain issues as excuses.

As I said, the pivot to the Metaverse, is coming from a position of weakness, not strength: https://www.valuebuddies.com/thread-1649...#pid164054

Their invasive privacy issue is facing increasing push-back from regulators, and more importantly, platform owners such as Apple (IDFA).

They are facing a decline in their core businesses, and use among younger audience: https://www.marketingcharts.com/demograp...ger-119238

But looks like the demographic collapse of Facebook users (user loss to TikTok, Snap, Roblox among other platforms) is going to happen faster than I expect.

(ex investor)

[D123]

Facebook stands to shed more than $200 billion in market value after rough earnings report
https://www.marketwatch.com/story/meta-s...1643837086

In first quarterly report as Meta, competition and Apple’s iOS changes are blamed for a holiday-earnings miss and weak first-quarter guidance

---

Note that Google popped just yesterday, on 32% revenue growth; without using Apple IDFA and supply-chain issues as excuses.

As I said, the pivot to the Metaverse, is coming from a position of weakness, not strength: https://www.valuebuddies.com/thread-1649...#pid164054

Their invasive privacy issue is facing increasing push-back from regulators, and more importantly, platform owners such as Apple (IDFA).

They are facing a decline in their core businesses, and use among younger audience: https://www.marketingcharts.com/demograp...ger-119238

But looks like the demographic collapse of Facebook users (user loss to TikTok, Snap, Roblox among other platforms) is going to happen faster than I expect.

(ex investor)

Seems like you are seeing a lot of challenges for Meta and I agree. Just one thing - the IDFA/ATT changes on iOS are a benefit for Google especially with respect to the e-commerce ad verticals because on a relative basis, ads on Meta's apps are now more expensive than before, and ads on Google's are cheaper than before. The difference in ad efficiency on iOS phones and Android phones has narrowed.

[Wildreamz]

Yes D123, I have been negative on FB for quite a while. They have not improved since, but instead, doubled down on invasive privacy policies; which has always been a dead-end business model.

That said, I listened to last nights earnings call. Seems that they are finally pivoting to a new model that "relies on less personal data for ad targeting". I'm not sure when they started this, as I have not listened to any of their earnings call since I sold out in 2018.

And privacy is just 1 of many of their issues.

[weijian]

The core business may have peaked but it still has good economics. From a FCF perspective, FB is generating ~30-40bil FCF and based on last market cap of ~700bil, that is around 20-25x FCF.

It is "sort of" fairly valued for a business that has strong moats but unfortunately a few things go against it - (1) Mr Market treats FB as "growth", rather than "strong moats". (2) Putting on the lens of value investing...If FB halts its Metaverse progress and commits to pay out its FCF, then it may actually get interesting! But unfortunately, with the core business showing that it is closer to the peak (or past it) than not, Mark Zuckerberg will only double down from here.

The end of the metaverse hopefully

Nikita Bier, the founder of the tbh app, which was acquired by Facebook in 2017, had a good take on this, tweeting, “Facebook's hands are tied. 1—High ARPU coastal users have churned; TikTok is eating their lunch. 2—They can't acquire because of antitrust scrutiny. 3—They can't build because founders don't want to be there. 4—IDFA killed their ability to target ads. 5—The metaverse is 10yrs out. RIP.”

https://www.garbageday.email/p/the-end-o...-hopefully

[Wildreamz]

Focus on fundamentals, and focus on providing more value than it extracts from stakeholders (users, creators, advertisers, shareholders etc.) is simply not in Facebook's DNA. 

Or else, they would not be facing this debacle in the first place (they should have designed their product to be more privacy focused over time, as Google and Snap did; before they are forced to).

Facebook has changed their name (non-trivial) and doubled down on the "Metaverse" (whatever they think it means). There is no turning back. At least not when Zuckerberg is in charge (he still has 58% voting rights). And I fear that this money-burning experiment is going to go on for too long for their own good (at least 5 years). While their fundamental social media business continues to contract.

In tech, 3 years is already a life-time. If Facebook is unable to make this pivot, it will be a good case study why business acumens, profitable core business, "moat", a strong balance sheet, cheap valuation relative to the past etc. Isn't necessary enough to ensure good investment returns, if the management also lack "integrity" to stakeholders.

Warren Buffett's 3 quality to look for in managers: Integrity, Intelligence, Energy. Integrity being the most important.

(ex-investor, not investment advise)

[madagnet]

Focus on fundamentals, and focus on providing more value than it extracts from stakeholders (users, creators, advertisers, shareholders etc.) is simply not in Facebook's DNA. 

Or else, they would not be facing this debacle in the first place (they should have designed their product to be more privacy focused over time, as Google and Snap did; before they are forced to).

Facebook has changed their name (non-trivial) and doubled down on the "Metaverse" (whatever they think it means). There is no turning back. At least not when Zuckerberg is in charge (he still has 58% voting rights). And I fear that this money-burning experiment is going to go on for too long for their own good (at least 5 years). While their fundamental social media business continues to contract.

In tech, 3 years is already a life-time. If Facebook is unable to make this pivot, it will be a good case study why business acumens, profitable core business, "moat", a strong balance sheet, cheap valuation relative to the past etc. Isn't necessary enough to ensure good investment returns, if the management also lack "integrity" to stakeholders.

Warren Buffett's 3 quality to look for in managers: Integrity, Intelligence, Energy. Integrity being the most important.

(ex-investor, not investment advise)

To be fair, every time Zuckerberg did something radical (e.g. spent billions buying instagram/whatsapp when they were just small startups) there were initial skepticism, and they eventually turned out to be great business decisions..