6 ms·

Question for folks here: what is the bull case for Meta remaining a growth stock, given the current regulatory environment and uncertainty around the medium-ter

by gen220 4y ago

Question for folks here: what is the bull case for Meta remaining a growth stock, given the current regulatory environment and uncertainty around the medium-term prospects of VR as an "attention" category? More concretely, what is the scenario for META going back to "good ol' days of" mid-20%, low-30% YoY quarterly revenue growth, given mounting regulatory and privacy barriers that are largely beyond their ability to exert influence/control? Context is they're on a streak of 4 quarters of <10% YoY quarterly growth for the first time in their history. Last three quarters were basically air-balls (flat / slightly-negative).

lvl102 4y ago
You know Meta has the best tech in terms of AI/ML right? They just need a new leadership focus to steer the company in the right direction. They literally have all the tools to lead in that area.
- rcme 4y ago
  Do they? The LLM they released was much worse than GPT-3.
  - lvl102 4y ago
    All those models are only as good as the data they’re trained on. Google and Meta both have the most relevant proprietary data that cannot be rivaled. Not even close.
    - vernon99 4y ago
      This depends on what are you training the model for. Arguably wikipedia is a much better dataset for all things related to real world and history than Fb’s feed or activities or a bunch of websites optimized for SEO. This is easily illustrated by ChatGPT not being Google or Meta and doing a pretty great job with available sources. So no, this doesn’t matter much, imo.
      - roland35 4y ago
        As an encyclopedia sure wikipedia is great but the type of data Google and Meta has is totally different. Basically a real time feed of who is talking to who about what, and what people are searching for. Totally different applications
      - lvl102 4y ago
        That’s incredibly naive. ChatGPT is not the state of the art. Not even close.
    - kibwen 4y ago
      > All those models are only as good as the data they’re trained on. Having seen the average level of discourse on Facebook, I have no reason to believe that it contains any proprietary data worth training on.
      - coffeebeqn 4y ago
        I guess you could train the ultimate toxic shitposter and then do the opposite of what it says
  - celestialcheese 4y ago
    It's largely worse from the outside because meta has no goodwill to make mistakes and iterate in public. GPT-2/3 were just as bad at hallucination, if not worse. That doesn't mean that meta isn't iterating on their LLM in private using the 3b users and armies of labelers to fine-tune and improve their model. From what I understand, they have one of the strongest translation models at scale, and their recommendation models for advertising are likely only rivaled by Google or Bytedance
- gen220 4y ago
  How does this concretely translate into a marginal $30bn/year in revenue? Inverting the question, who would collectively pay $30bn/year to buy "AI/ML from Meta", assuming you're talking about a new product offering.
  - deltree7 4y ago
    There are only two platforms where AI/ML will be delivered. Cloud for the Enterprise and Mixed Reality for People. Mixed Reality is the final platform that kills all other platforms and has a potential greater than $40 Trillion
    - germinalphrase 4y ago
      “ There are only two platforms where AI/ML will be delivered” Why would you believe these are the only platforms?
      - deltree7 4y ago
        In a broad investment sense. Sure there will be other niches. But just like Mobile phones and Servers were the twin tech platforms till 2020 that delivers all of digital value. That paradigm will shift to MR and Cloud. If we are all going to live in a Metaverse, you need a MR device to deliver that experience to the user and Cloud to centralize/distribute those experiences. Besides food (and physical healthcare) and a climate-controlled 20 x 20 space, you don't need the real world (atoms). All your experiences will be delivered through bits.
tukantje 4y ago
Normally acquiring smaller companies would be the answer but that is no longer possible, it would seem. They also couldn't diverge into finance. Honestly, by this point, it could be that the stock is hit too hard, but I fail to see a long term bull case as things are today.
- gen220 4y ago
  They're currently priced at 3.5x annualized revenue. If you assume they could capture 20% of that revenue consistently, that's 20x annualized profits (equivalent to 13ish years of profit on this basis). To me, this seems close to the max price I'd value Meta, given the headwinds to growth they face. The inability to grow via acquisition seems like a big hurdle -- that's what I was hinting at with "regulatory pressure". To me, I think the bull case is that they come out with an Apple-tier-quality headset, thereby begetting and capturing the mainstream headset market from a data privacy point of view, and that this new market is additive or multiplicative to their core ads business, rather than cannibalizing (an idea that is, itself, suspect). IDK. If I bought at $90 (which I didn't, somewhat foolishly in hindsight), I'd feel pretty comfortable selling at the current after-market price.
  - tukantje 4y ago
    Oh definitely, we are not disagreeing. I have two rules personally - don't invest in highly speculative assets, don't invest short term. So I am out of $META in general, as it fails the test on both prongs for me. It is highly volatile at the moment, and if I think 10 years into the future, the only reason I can think of for them being around is "network effects". Compared to something like $NVDA, that is just a weak argument in my opinion.
    - gen220 4y ago
      Yes! Sorry didn't mean to sound like I was disagreeing, I was more just riffing on what you said. More riffing below :) I think $META will continue to win the "social network" game on any computing platform into the foreseeable future, as that's their "unreasonable" competency. i.e. Even if Apple wins the VR hardware game, Meta has an unfair advantage at developing the most popular social media app on that platform. However, I struggle to see a narrative where the capturable value of that social media landscape increases at growth stock rates into the distant future, given the fact that any VR winner other than Meta is liable to create a more-private-by-default computing platform than previous platforms of computing (this seems to be a secular trend). So, even if Meta controls the same percentage of the "social media advertising" market into the transition to VR, I could see this being a smaller TAM than "social media advertising" is at (now-peak) web 2.0. That is, it seems like their only hope to remain a growth stock to become the "Apple of VR", which seems to be squarely outside their circle of competency. All in all, I'd agree with you and put META in the "too hard" / "probably not" category at current price. Although, even with these uncertainties, $90 was a no-brainer in retrospect (even assuming permanently-flat revenue). With perfect hindsight, I would have bought then and probably sold at $120, although that's all hot air (X
rcme 4y ago
Why does it need to be a growth stock? It’s still pretty cheap even for a value stock.
- gen220 4y ago
  I think the current after-market price ($180ish) pushes it out of the "value" category, at least for me (there's no hard science on this). To me, $180ish prices-in some growth that I'm personally skeptical towards, hence my question! :)
  - HDThoreaun 4y ago
    Disagree. If they are able to cut costs a bit more $180 is a perfectly reasonable value price for metas revenue.
deltree7 4y ago
Metaverse is a $20 Trillion market by 2035. Only Apple and Meta are the true players who are all in. Even if Apple captures some high-end market, Meta has the opportunity to sweep the rest
- ipsum2 4y ago
  That's a ridiculous forecast.
  - kibwen 4y ago
    Modern investing isn't about evaluating a company's products or services, it's about making increasingly-outrageous claims in order to take advantage of the human tendency to fail to exercise skepticism for sufficently-outrageous lies. The goal is to create a fanatical religion of financial death-cultists who will endlessly proselytize in the pursuit of a promised "to the moon" event, in the same way that Heaven's Gate believed that UFOs would swoop down and take them to heaven. So, indeed, by 2035 we can accurately predict that half of all global GDP will be in Facebook, half will be in Tesla, the other half will be tied up in Bitcoin, and the rest of the world economy (who probably aren't doing anything important anyway) will fight over the fourth half.
    - deltree7 4y ago
      World GDP by 2035 is $200 Trillion People conservatively will live in a Metaverse an average of 4 hours or 25% of their waking day or $50 Trillion of it. Even if you are conservative, Metaverse is a $30 Trillion opportunity. Ignore at your own peril
      - rsynnott 4y ago
        … Why would they do that, tho? Like, the real world exists, just outside the door. I think VR advocates possibly are inclined to overestimate just how much people will like VR. It seems fairly plausible that it remains a niche hobby.
curiousllama 4y ago
A few long term bull arguments: - They have the worlds largest messaging platform (WhatsApp) that is basically unmonetized rn. - They are one of 3-5 major players in AI. Amazon was one of the 3-5 largest internet companies... and then created AWS. (e.g., they released-then-unreleased a GPT3 clone before ChatGPT, because they got slammed in the press for ethics. doesn't mean they can't build a B2B business with it.) - The regulatory landscape is shifting towards tech nationalism. Yea, there'll be regulation, but nationalism will limit the scope + create a moat against upstarts. Recessions are great times to build new businesses - if you have cash on hand. They have cash.
- qqtt 4y ago
  It's not clear it's even possible to effectively monetize pure messaging platforms like WhatsApp - there aren't many successful examples of highly monetized chat apps. Chat is pretty much the hardest thing in all of social networking to monetize and there is no guarantee Facebook can effectively monetize WhatsApp without sabotaging its primary purpose (communication). IMO there is a reason WhatsApp is still basically unmonetized right now. How does Facebook stand to monetize from AI? AWS and Google monetize through their cloud offerings, but Facebook went the library/framework route with PyTorch. That seems like a big question mark if they can capitalize on AI in some form outside of their own internal systems (like ad optimization and general monetization/product improvements, which everyone is doing at the same time). They have a ton of cash, but can they effectively use it? They are burning a lot of it on VR which isn't catching on the way they envisioned. Facebook is at a point where they are already huge so to maintain 'growth stock' valuations they have to keep delivering quarter over quarter results that move the needle in the billions and billions of dollars. I don't see a compelling case for them to do that based on these pillars.
  - ppsreejith 4y ago
    > It's not clear it's even possible to effectively monetize pure messaging platforms like WhatsApp Well, WhatsApp is moving beyond "pure" messaging with payments and commerce (Eg: JioMart integration in India). Another approach would be to compare with wechat with 1.2 billion active users generating an estimated 15+ Billion in revenue in 2021 (https://www.businessofapps.com/data/wechat-statistics/ https://www.businessofapps.com/data/wechat-statistics/) without much North America / EU presence and being banned in India. Thirdly, click to message ads are already a "multi-billion dollar" business with "strong double digit growth" as of 2022 (https://www.cnbc.com/2022/08/07/why-meta-and-mark-zuckerberg-are-betting-big-on-whatsapp-for-business-.html https://www.cnbc.com/2022/08/07/why-meta-and-mark-zuckerberg...)
chaostheory 4y ago
I still believe long term that XR will replace or augment our smart phones. Apple will make it socially acceptable and meta will capitalize on selling it to the mid to low end of the market.
2OEH8eoCRo0 4y ago
Almost 3 billion monthly active users and youngsters like their VR.
lanza 4y ago
My personal bet is that the tech giants are immune from US regulation. Hurting a tech giant just means that that market position goes to Asia, most likely China.
dcolkitt 4y ago
At current price, Facebook doesn't have to remain a growth stock. It's trading at a 15 P/E multiple. For comparison Proctor and Gamble is trading at a 25 P/E, Coca Cola at 26 P/E, and Comcast at 33 P/E. For Facebook to go up (at least relative to prevailing American equity valuations), it just has to remain a blue chip marquee name and not go into terminal decline.

by gen220 4y ago

lvl102 4y ago

You know Meta has the best tech in terms of AI/ML right? They just need a new leadership focus to steer the company in the right direction. They literally have all the tools to lead in that area.

rcme 4y ago
Do they? The LLM they released was much worse than GPT-3.
- lvl102 4y ago
  All those models are only as good as the data they’re trained on. Google and Meta both have the most relevant proprietary data that cannot be rivaled. Not even close.
  - vernon99 4y ago
    This depends on what are you training the model for. Arguably wikipedia is a much better dataset for all things related to real world and history than Fb’s feed or activities or a bunch of websites optimized for SEO. This is easily illustrated by ChatGPT not being Google or Meta and doing a pretty great job with available sources. So no, this doesn’t matter much, imo.
    - roland35 4y ago
      As an encyclopedia sure wikipedia is great but the type of data Google and Meta has is totally different. Basically a real time feed of who is talking to who about what, and what people are searching for. Totally different applications
    - lvl102 4y ago
      That’s incredibly naive. ChatGPT is not the state of the art. Not even close.
  - kibwen 4y ago
    > All those models are only as good as the data they’re trained on. Having seen the average level of discourse on Facebook, I have no reason to believe that it contains any proprietary data worth training on.
    - coffeebeqn 4y ago
      I guess you could train the ultimate toxic shitposter and then do the opposite of what it says
- celestialcheese 4y ago
  It's largely worse from the outside because meta has no goodwill to make mistakes and iterate in public. GPT-2/3 were just as bad at hallucination, if not worse. That doesn't mean that meta isn't iterating on their LLM in private using the 3b users and armies of labelers to fine-tune and improve their model. From what I understand, they have one of the strongest translation models at scale, and their recommendation models for advertising are likely only rivaled by Google or Bytedance
gen220 4y ago
How does this concretely translate into a marginal $30bn/year in revenue? Inverting the question, who would collectively pay $30bn/year to buy "AI/ML from Meta", assuming you're talking about a new product offering.
- deltree7 4y ago
  There are only two platforms where AI/ML will be delivered. Cloud for the Enterprise and Mixed Reality for People. Mixed Reality is the final platform that kills all other platforms and has a potential greater than $40 Trillion
  - germinalphrase 4y ago
    “ There are only two platforms where AI/ML will be delivered” Why would you believe these are the only platforms?
    - deltree7 4y ago
      In a broad investment sense. Sure there will be other niches. But just like Mobile phones and Servers were the twin tech platforms till 2020 that delivers all of digital value. That paradigm will shift to MR and Cloud. If we are all going to live in a Metaverse, you need a MR device to deliver that experience to the user and Cloud to centralize/distribute those experiences. Besides food (and physical healthcare) and a climate-controlled 20 x 20 space, you don't need the real world (atoms). All your experiences will be delivered through bits.

tukantje 4y ago

Normally acquiring smaller companies would be the answer but that is no longer possible, it would seem. They also couldn't diverge into finance. Honestly, by this point, it could be that the stock is hit too hard, but I fail to see a long term bull case as things are today.

gen220 4y ago
They're currently priced at 3.5x annualized revenue. If you assume they could capture 20% of that revenue consistently, that's 20x annualized profits (equivalent to 13ish years of profit on this basis). To me, this seems close to the max price I'd value Meta, given the headwinds to growth they face. The inability to grow via acquisition seems like a big hurdle -- that's what I was hinting at with "regulatory pressure". To me, I think the bull case is that they come out with an Apple-tier-quality headset, thereby begetting and capturing the mainstream headset market from a data privacy point of view, and that this new market is additive or multiplicative to their core ads business, rather than cannibalizing (an idea that is, itself, suspect). IDK. If I bought at $90 (which I didn't, somewhat foolishly in hindsight), I'd feel pretty comfortable selling at the current after-market price.
- tukantje 4y ago
  Oh definitely, we are not disagreeing. I have two rules personally - don't invest in highly speculative assets, don't invest short term. So I am out of $META in general, as it fails the test on both prongs for me. It is highly volatile at the moment, and if I think 10 years into the future, the only reason I can think of for them being around is "network effects". Compared to something like $NVDA, that is just a weak argument in my opinion.
  - gen220 4y ago
    Yes! Sorry didn't mean to sound like I was disagreeing, I was more just riffing on what you said. More riffing below :) I think $META will continue to win the "social network" game on any computing platform into the foreseeable future, as that's their "unreasonable" competency. i.e. Even if Apple wins the VR hardware game, Meta has an unfair advantage at developing the most popular social media app on that platform. However, I struggle to see a narrative where the capturable value of that social media landscape increases at growth stock rates into the distant future, given the fact that any VR winner other than Meta is liable to create a more-private-by-default computing platform than previous platforms of computing (this seems to be a secular trend). So, even if Meta controls the same percentage of the "social media advertising" market into the transition to VR, I could see this being a smaller TAM than "social media advertising" is at (now-peak) web 2.0. That is, it seems like their only hope to remain a growth stock to become the "Apple of VR", which seems to be squarely outside their circle of competency. All in all, I'd agree with you and put META in the "too hard" / "probably not" category at current price. Although, even with these uncertainties, $90 was a no-brainer in retrospect (even assuming permanently-flat revenue). With perfect hindsight, I would have bought then and probably sold at $120, although that's all hot air (X

rcme 4y ago

Why does it need to be a growth stock? It’s still pretty cheap even for a value stock.

gen220 4y ago
I think the current after-market price ($180ish) pushes it out of the "value" category, at least for me (there's no hard science on this). To me, $180ish prices-in some growth that I'm personally skeptical towards, hence my question! :)
- HDThoreaun 4y ago
  Disagree. If they are able to cut costs a bit more $180 is a perfectly reasonable value price for metas revenue.

deltree7 4y ago

Metaverse is a $20 Trillion market by 2035. Only Apple and Meta are the true players who are all in. Even if Apple captures some high-end market, Meta has the opportunity to sweep the rest

ipsum2 4y ago
That's a ridiculous forecast.
- kibwen 4y ago
  Modern investing isn't about evaluating a company's products or services, it's about making increasingly-outrageous claims in order to take advantage of the human tendency to fail to exercise skepticism for sufficently-outrageous lies. The goal is to create a fanatical religion of financial death-cultists who will endlessly proselytize in the pursuit of a promised "to the moon" event, in the same way that Heaven's Gate believed that UFOs would swoop down and take them to heaven. So, indeed, by 2035 we can accurately predict that half of all global GDP will be in Facebook, half will be in Tesla, the other half will be tied up in Bitcoin, and the rest of the world economy (who probably aren't doing anything important anyway) will fight over the fourth half.
  - deltree7 4y ago
    World GDP by 2035 is $200 Trillion People conservatively will live in a Metaverse an average of 4 hours or 25% of their waking day or $50 Trillion of it. Even if you are conservative, Metaverse is a $30 Trillion opportunity. Ignore at your own peril
    - rsynnott 4y ago
      … Why would they do that, tho? Like, the real world exists, just outside the door. I think VR advocates possibly are inclined to overestimate just how much people will like VR. It seems fairly plausible that it remains a niche hobby.

curiousllama 4y ago

A few long term bull arguments: - They have the worlds largest messaging platform (WhatsApp) that is basically unmonetized rn. - They are one of 3-5 major players in AI. Amazon was one of the 3-5 largest internet companies... and then created AWS. (e.g., they released-then-unreleased a GPT3 clone before ChatGPT, because they got slammed in the press for ethics. doesn't mean they can't build a B2B business with it.) - The regulatory landscape is shifting towards tech nationalism. Yea, there'll be regulation, but nationalism will limit the scope + create a moat against upstarts. Recessions are great times to build new businesses - if you have cash on hand. They have cash.

qqtt 4y ago
It's not clear it's even possible to effectively monetize pure messaging platforms like WhatsApp - there aren't many successful examples of highly monetized chat apps. Chat is pretty much the hardest thing in all of social networking to monetize and there is no guarantee Facebook can effectively monetize WhatsApp without sabotaging its primary purpose (communication). IMO there is a reason WhatsApp is still basically unmonetized right now. How does Facebook stand to monetize from AI? AWS and Google monetize through their cloud offerings, but Facebook went the library/framework route with PyTorch. That seems like a big question mark if they can capitalize on AI in some form outside of their own internal systems (like ad optimization and general monetization/product improvements, which everyone is doing at the same time). They have a ton of cash, but can they effectively use it? They are burning a lot of it on VR which isn't catching on the way they envisioned. Facebook is at a point where they are already huge so to maintain 'growth stock' valuations they have to keep delivering quarter over quarter results that move the needle in the billions and billions of dollars. I don't see a compelling case for them to do that based on these pillars.
- ppsreejith 4y ago
  > It's not clear it's even possible to effectively monetize pure messaging platforms like WhatsApp Well, WhatsApp is moving beyond "pure" messaging with payments and commerce (Eg: JioMart integration in India). Another approach would be to compare with wechat with 1.2 billion active users generating an estimated 15+ Billion in revenue in 2021 (https://www.businessofapps.com/data/wechat-statistics/ https://www.businessofapps.com/data/wechat-statistics/) without much North America / EU presence and being banned in India. Thirdly, click to message ads are already a "multi-billion dollar" business with "strong double digit growth" as of 2022 (https://www.cnbc.com/2022/08/07/why-meta-and-mark-zuckerberg-are-betting-big-on-whatsapp-for-business-.html https://www.cnbc.com/2022/08/07/why-meta-and-mark-zuckerberg...)

chaostheory 4y ago

I still believe long term that XR will replace or augment our smart phones. Apple will make it socially acceptable and meta will capitalize on selling it to the mid to low end of the market.

2OEH8eoCRo0 4y ago

Almost 3 billion monthly active users and youngsters like their VR.

lanza 4y ago

My personal bet is that the tech giants are immune from US regulation. Hurting a tech giant just means that that market position goes to Asia, most likely China.

dcolkitt 4y ago

At current price, Facebook doesn't have to remain a growth stock. It's trading at a 15 P/E multiple. For comparison Proctor and Gamble is trading at a 25 P/E, Coca Cola at 26 P/E, and Comcast at 33 P/E. For Facebook to go up (at least relative to prevailing American equity valuations), it just has to remain a blue chip marquee name and not go into terminal decline.