Since becoming Meta, Facebook’s parent company has lost $650B in market value
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People act like Meta is going under because their free cash flow went from $8B to $4B in a year when they've faced headwinds from Apple's new privacy policy and the economy overall.
As far as I can tell the company is in perfectly fine financial health.
The market is essentially betting that Meta is headed in the wrong direction to increase profits over the near term. I think Zuck might actually agree with them.
This depends on interest rates, inflation, relative attractiveness of the industry (concentration, ease of entry, etc).
This isn’t true. The market believes Meta will still grow, just slower than before. If they believe growth is zero, as you indicate with “stabilize”, their PE ratio will plummet even further.
This is a 5% earnings yield. That's a whopping 99 basis points ahead of the 1-year rate and 103 north of the 6-month [1]. One can adjust for growth [2]. But a neutral 20x multiple is not a fact of nature.
[1] https://home.treasury.gov/resource-center/data-chart-center/...
When a company has cash that it can't invest as profitably as its shareholders could do on their own, it's obligated to pay it to them as a dividend. It's their money.
Of course, Zuckerberg would rather flush it down the toilet and call it "innovation." The stock market is voting No on that.
Since they have so much money at stake, they have an interest in understanding it. Not doing so will cost them their jobs.
"Understanding" is "in the financial sense" of course. They mostly care about the volumes of money going in and out, and expectations for that.
Maybe you mean "individual investors." Institutions account for the majority of trade volume, and have for a long time.
The presumption was always "high tech companies have so many opportunities to reinvest their profits, they shouldn't pay any dividends."
If that's really true, then they shouldn't. However, if they can't use the money effectively, then the dividend is the responsible option. Even a one-time payout, like https://www.nytimes.com/2004/07/21/business/technology-micro....
It does seem clear that MZ can't be trusted with all that cash.
I'd love to see a source for this. What is the precise nature of this obligation, and who enforces it?
In other words, it was a statement of opinion. You can't really [citation needed] opinions like that.
Management is generally given huge leeway here and shareholders will usually vote with their feet as has happened with Meta.
Even if you sue, you probably wouldn't win, and it would be horrendously expensive.
https://markets.businessinsider.com/news/stocks/meta-faceboo...
Aside from, as far as I know, not being any kind of legal obligation... I don't see how that situation would ever even come into effect if it was.
What kind of investment opportunity is going to turn down cash from a company (especially one the size of Facebook/Meta) but welcome it from most/all of their investors?
Several people corrected the word "obligation" to "expectation." That's the right word.
If you get a big dividend check from Meta for your shares (and by "big" I mean "Bobby Axelrod big") you invest it in your leading opportunity.
Zuckerbergs owns less than 50% of the company but he can do whatever he wants and no activist investor has any say.
Owning these Class-A shares (why not call them class Z?) is worth 1/10 as much as owning class B shares that Mark and his cronies own.
The multiple voting share structure is an abomination and perversion of stock market.
The old way was at least more honest.
Regular shares -> most risk, most profit, actual voting rights
Preferred shares -> less risk, some profit, no voting (what Class A should be)
Bonds -> least risk, set yield, highest preference at liquidation
Investors can choose to avoid these shares, of course, since they're missing the "possible takeover premium." In the old days, they would have.
I don't see Elizabeth Warren or Bernie Sanders crusading against this, by the way.
But the Norwegian Sovereign Wealth Fund, which he has mentioned favorably as a potential model for the US, does recommend against investing in companies with these types of share arrangements unless they have a sunset date (their analysis is that there is a benefit to giving founders control but that it diminishes and becomes a detriment over time). Matt Bruenig/People’s Policy Project has written on the topic also.
There are lots of private companies. Going public is not the only way to get liquidity. So I would say, as John Q. Investor, "If you get my money, I get to vote to fire you."
But I mostly agree with your comments here.
But hey this is journalism where you need to draw clicks and 'lost' probably hits home more
In paper value. Odds are most are still up on their investment.
Equity isn't cash.
Meta stock is now at $99, a price last seen in early 2016. Chart: https://finance.yahoo.com/chart/META#eyJpbnRlcnZhbCI6IndlZWs...
So if you would have bought and held the stock any time after that, you'd currently be sitting on a loss.
I'm not so sure about that; FB hasn't traded in this range since mid-2015, doesn't pay dividends and hasn't had any splits. Also, USD today is worth ~20% less in real terms today than it was in 2015
This is real-life loss of value. Saying it's "paper value" makes as much sense as saying the money in your bank account isn't cash because it's just "numbers of a screen".
I'm astonished that somebody could think stock losses are somehow less harmful than losing cash. That's just wrong.
The almost universal advice before buying stocks is that it's only good for the long term, because at any particular moment it might lose its value.
It is always stressed that you shouldn't use money to buy stocks if you might need that money in the next ten years. It is also recommended to move money from stocks to a safer instrument as you get closer to needing to use it.
But I would disagree there too. There are big differences in liquidity for different companies’ shares, and it varies with time.
You might as well say there are big differences in ATM fees depending on where you withdraw money, and it varies by bank.
But that's not the point. These tiny details are utterly irrelevant to the fact that stock value is as real as cash. It's not "paper value" where gains and losses are somehow imaginary or don't count.
Sure, but what is also real is that nominal equity prices can go up or down at anytime, whereas the nominal amounts of cash should not.
When VOO price goes down, I think of that as a very different loss than if my checking/savings account balance were to have gone down without me withdrawing from it.
One should not expect nominal equity prices to be a certain number, or a certain minimum number, especially single stocks. It is paper value, as far as I am concerned.
Well you shouldn't. Your net worth is measurably different because it's all liquid. It's a cognitive illusion if you're thinking of them any differently. And if you're making a big financial decision like whether you can afford a bigger house, I sure hope you're treating them the same.
And at the end of the day even the nominal value of cash isn't what matters -- it's the real value. Inflation and even currency fluctuation change the real value of what your cash can purchase daily, so the value of your cash is changing too. (The only difference is that cash fluctuations are usually slower and more gradual, and that contracts about future payments are generally denominated in currency rather than equity, but of course not always.)
On the contrary, I would suggest most people ignore their equity such as stock when considering whether or not they can afford a mortgage for the very reason of this thread title.
> And at the end of the day even the nominal value of cash isn't what matters -- it's the real value.
I prefer to use the term “purchasing power” rather than “real value”, but I agree with this.
>Inflation and even currency fluctuation change the real value of what your cash can purchase daily, so the value of your cash is changing too.
Correct, which is why buy equity such as stock or broad market ETF. I think the purchasing power of the equity will be higher than cash sufficiently far into the future.
But I do not see the point of worrying about decreases in equity prices in the near future long before I plan on selling. I guess there is no right or wrong, but I feel like worrying about short term changes in price is how people actually lose money by selling low and bugging high, rather than just buying and holding.
So you're saying... when people make a housing purchase decision... they should ignore the value of their savings?
I'm sorry but that's one of the dumbest things I've ever heard. Stocks are savings, they're investments, they're net worth, and treating them as if their value doesn't factor into your financial decisions is utterly nonsensical.
> But it does not help me to pay attention to prices today or the short term.
It sure does if you need to sell some stocks to finance a purchase today. Because you know when people take money to put a down payment on a mortgage? That comes from savings. And savings should be invested in a diverse set of holdings... that includes stocks.
I can see you're holding stocks for the long-term. That's fine and a valid investment decision. But something might happen where you have to dip into them tomorrow. And I can guarantee you, you're going to suddenly be very concerned about a decrease in the value of your equities. And that's the whole point. They're not made-up funny money. They're value as real as cash.
No, I wrote they should ignore non cash or near cash holdings for the purposes of determining how much of a mortgage they can afford.
> Because you know when people take money to put a down payment on a mortgage? That comes from savings. And savings should be invested in a diverse set of holdings... that includes stocks.
Savings that are needed in the short term should not be invested in stocks, or other non liquid and/or volatile assets.
> But something might happen where you have to dip into them tomorrow.
This should only be in the utmost emergency scenarios. Ideally, one has sufficient cash or cash equivalent securities for at least a couple years of expenses. Or at least that is my philosophy.
The point is, liquid stocks (regular publicly traded companies) are not "paper" value that are then somehow different when you go to sell them. They're the same as cash in terms of actual spendable wealth, they just take a couple of days to settle is the only difference -- but that's time, not value. And so when stocks drop like Meta, you've lost real actual wealth. Not in an imaginary "paper" sense or "paper value" as you say, but in a real, "I have less resulting cold hard cash when I cash out" way.
And anyone who says otherwise just doesn't know what they're talking about. This doesn't have anything to do with your investing philosophy, it's just the definition of how stocks and cash work.
But none of this has any relevance to the fact that, for immediate spending purposes, cash and liquid publicly traded stocks are identical.
It utterly irrelevant whether you "should" only hold stocks for money you don't think you'll need for 10 years (which is highly debatable, and day traders certainly disagree). The point is, if you need the money next week, your stocks and your cash are identical. That's all that matters.
GAAP accounting.
https://corporatefinanceinstitute.com/resources/knowledge/ac...
People behave much differently if the make or lose $100K in cash, vs making or losing $100K in stock holdings. Wealth effect.
There is literally no difference in wealth between losing $100K in cash or in stock, assuming the stock is liquid. They are equally "real", 100%.
And the wealth effect has literally nothing to do with this.
(Fine print: assuming your stock is no more than a small fraction of any specific company, and that these might have different effects on taxes. But the general point stands.)
If they have to spend the money now, it would already be in cash.
But if you need to spend the money now, you sell the stocks now so they become cash, which means the stock value is identical to the cash value. That's the whole point. There's no difference between "paper value" and cash value. They're the same.
I mean it might take a couple of days for the trade to settle so you can wire it, but that not the point. The value is just as instantaneous and liquid as cash for all practical purposes, for publicly traded companies generally.
Facebook IPO'd in 2012. The stock is down to its price in October 2015. There are a few people who own lots of shares obtained before October 2015, and they are up. There are probably more people who own a few shares obtained after October 2015, and they are down.
Also, (as someone who thinks Meta - by which I mean the metaverse - is stupid) I want to defend Facebook and say that doing nothing would also have made them quickly irrelevant. It's not like they could have rested on their laurels and expected FB and IG to be long term drivers of their stock valuation. Meta was imo a poor direction, but it was a direction, which is better than nothing
I think if we're using it in a non-sports context, "own goal" and "unforced error" are both appropriate.
This is the politicians fallacy:
>We need to do something.
>This is something.
>Ergo we must do it.
I can obviously think of any ways they could have done things worse. I can also think of many ways in which they could have done much better.
They didn't need the metaverse, but they did need some sort of new direction; buying out nascent social networks was a stall tactic to prolong the time before they became uncool with the hip youths.
I don't think it's too far of a stretch to say that Zuckerberg read Snow Crash as a teenager, loved it, and either missed the punk ethos or edited it out of his memory when he found himself in a position of respectable authority.
Facebook makes money by advertising. Apple closed the ability to track users over to 3rd party advertisers. Facebook is losing advertising money. Meta is just some ridiculous non issue. The problem is fundamental. They are losing the ability to give advertisers value. Put on all the meta head sets you want, but, FB needs to dig in and get a solution to advertiser tracking. [I am open to hire lol]
Fuck. That. The "solution to advertiser tracking" is surreptitiously tracking people all across the internet without their informed consent. And when Apple's policy change required informed consent, surprise surprise, people also said "Fuck That".
Facebook has tons of data from their own sites to build extremely detailed profiles of individuals to target advertising to them. If they can't build a profitable advertising business with that information, they deserve to die.
https://www.oberlo.com/statistics/facebook-ad-revenue Up 13% - https://investor.fb.com/investor-news/press-release-details/... Down 1% - https://investor.fb.com/investor-news/press-release-details/... Down 4% - https://investor.fb.com/investor-news/press-release-details/...
I don't know what rate of return they get on their cash; probably more than you or I get. However, either of these would be better than the metaverse:
1) starting a venture fund to invest in other startups, which really are innovative but don't need $100's of millions yet.
2) paying a one-time or continuing dividend to shareholders, like Microsoft did in 2004: https://www.nytimes.com/2004/07/21/business/technology-micro...
The market hates innovation - until its successful, then loves it. Meta making such a big bet on the future, win or lose, is inspiring.
The stock price doesn’t affect meta, unless they want to raise money
Yikes.
Mark's metaverse is very specifically a shared virtual physical environment. Yes you're going to pay to enter spaces and have experiences and buy clothing... but Horizon Worlds isn't an app on the platform. It is the platform, it is the metaverse, everything is happening within it in Mark's vision here.
Metaverse == Horizon Worlds
The Quest operating system, and the Meta app store, are obviously not the metaverse... the metaverse is a universe of shared 3D spaces. That's Horizon Worlds. The spaces are the "worlds".
$100bn. One. Hundred. Billion.
Do you really think this is an efficient allocation of resources? Here's a thought: Zuckerberg is worth $30 to 40bn [1]. Let's take $10bn of that and let Zuckerberg personally invest that in start-ups. Which team do you think will innovate more? Facebook burning ten times that? Or $10bn fronting founders?
What are you even talking about? Huge VC funding is predicated entirely on innovation before proving success. The market loves innovation... when it actually makes some kind of coherent sense.
> Meta making such a big bet on the future, win or lose, is inspiring
No it's not inspiring, it's idiotic. That's like saying "I bet my house and my kids' college money on a new crypto coin, but win or lose, it's inspiring!" It's not inspiring, it's just irresponsible.
We already have VR. Incrementally, maybe there will be some sort of popular VR chat down the road, but it's just too expensive at this point for mass adoption. The distance between getting a Twitter account and hopping on the Metaverse is over $500.
The problem in every hype cycle of VR is never price. It's strapping a chunk of plastic to your head and blocking out the real world.
I see something like Google Project Starline as being a better bet for "mass adoption" in the application space that meta is aiming for.
I'd love to see a "Minority Report"-like interface in the form of Starline + Kinect. Oh, and with electronic ink to save my eyes. Thank you, future.
The idea of putting on a headset and "experiencing" a "chat" is a downright Lovecraftian dystopia that I want no part of - and I work in tech. Maybe it's the proximity to hardware that makes me so hostile to the idea, but I cannot for the life of me imagine doing that voluntarily. And thus I have to imagine that it wouldn't be voluntary if it becomes mainstream. "Everyone needs a facebook" becomes "everyone needs an Oculus" and so on. That it's $500 is a minor aspect of this.
> The idea of putting on a headset and "experiencing" a "chat" is a downright Lovecraftian dystopia
For the record, I fully believe that to be accurate for headsets. But how about fully immersive, 270°-by-270° viewport VR helmets? I've just come back from a beach holiday, and the thing that struck me was how many children were using snorkeling helmets. Not snorkels and goggles, but full-on helmets with a builtin snorkel jutting out on top. If kids can find such devices comfortable for making their swimming and light diving experience easier, then from a form factor point of view, a VR device going the same route might not be an entirely impossible thing.
The tech sure isn't there yet. And from a latency point of view, may never[0] become a reality. But a device around one's head appears not to be unthinkable.
0: I don't know how many milliseconds of visual latency a human brain can tolerate before breaking the immersion and/or giving the user a headache, but I suspect it's in single digits. Getting to those kinds of refresh rates, the display bandwidth demands would be insane. Possibly beyond what's physically possible.
Google has its playstore to sell freely its services.
Facebook needs a way out. TikTok needs a way out.
The only policy that was detrimental to Facebook was to have the shocking audacity to, gasp, ask for a user's permission before tracking them on every other app and website. And, shockingly, nearly everybody said "No, I don't want to be tracked everywhere."
Facebook's business model deserves to die if that's the policy that kills it.
Now if Apple actually becomes a virtual monopoly or it's the opposite and they have to cut their margins it's a quite different picture.
Also a move like this would be almost certain to invite government intervention.
I guess the parent commenter used the wrong word to describe the people who tell meta not to innovate.
Crossing the chasm is a real thing for startups, and in that sence the mainstream indeed doesn't like the early part of innovation.
So when you say "mainstream" instead of "market", than it does makes sense.
Parent commenter was clearly referring to the investment market, since the entire subject is a fall in stock price. Crossing the chasm has nothing to do with the investment market.
> activist letter telling Meta to give up on the Metaverse
I assumed it were some users who came up with that letter, but a quick google search indeed revealed it was investors. That wasn't clear to me and you are indeed correct.
Perhaps you're confusing the market with the "public market", publicly held companies? But the private market is very much part of the market. Nobody's leaving money on the table, that doesn't even make any sense.
As to the bet on a metaverse, this idea comes from the 80s, and Meta has executed remarkably poorly on it - who can forget the legless avatars. Not even their own employees want to use it:
https://www.ndtv.com/world-news/inside-a-meta-virtual-realit...
The current plunge we're seeing is a vote of no confidence from the market.
To put that in perspective, I’ve seen an estimated cost of setting up a small colony on Mars to be that much.
Even to get a conservative 10% ROI (super low for the level of risk they are taking), they’d need to net $3 billion a year. I can’t think of any scenario where that is possible any time soon.
Debatable. ARK's Tesla forecasts lean heavily on robotaxi revenue and value creation. The valuation to private investors in SpaceX depends very heavily on Starlink becoming a global telecom giant because rockets by themselves would never be so valued.
Without that belief in a future, those companies would be worth far far less. What happened to Meta is that the potential of the metaverse turned out to be way too similar to a second Second Life. As long as Starlink isn't perceived as a second Iridium, it will have access to cheap capital.
The market hates not being sold on a story. And honestly Zuckerberg completely failed to sell the public on the metaverse.
We've had VR worlds for a decade plus. Noone used them. Horizon Worlds is the same thing, but monetized. And extremely expensive to build for some odd reason and with basically no users.
If the volume of sell orders gets too high, the exchange shuts down trading in that stock.
If it's high but not "too high" then the price they all get will be significantly less than what they expected.
My question is: how do you know that?
Date Open High Low Close* Adj Close* Volume
Oct 28, 2022 99.58 100.85 97.51 99.20 99.20 95,728,200
Oct 27, 2022 97.98 102.50 96.38 97.94 97.94 232,316,600
Oct 26, 2022 131.68 135.55 128.53 129.82 129.82 82,791,500
Oct 25, 2022 130.88 138.35 130.59 137.51 137.51 38,433,200
Exchanges have a collection of their participant's bids ("I will buy for this price") and offers ("I will sell for this price"). When a bid is matched with an offer, the transaction goes through.
Now this is the important part - there are only so many people willing to buy for $300. If there is a mass sell off, all those offers are consumed, and the exchange starts filling the offers of people who would buy for $299.99 (or whatever the next lowest price is). Once those offers are consumed, further down the price ladder we go.
That alone will ensure that not all sellers are getting top dollar, however a market selloff like that would trigger a cascade of lower prices (buyers withdrawing their bids and relisting at a lower price, or not relisting at all), along with things like stop losses and algorithms getting triggered.
> If they all tried to exit at the top
Assuming that "they all" means "the vast majority of shareholders", then sell pressure would be higher than buy pressure by definition, and the price would drop.
If there was enough buy pressure to absorb the sell pressure, then we're in a scenario where half or less of the shareholders are trying to exit.
If you own an oil well and pay out a ton of employees to try a new extraction method which causes a fire - the actual value of your asset has been destroyed. And a lot of money has also been transferred from investors to employees. The embarrassment may also cause you to lose trust of other companies which hurts the value of future contracts. Some of the value you destroyed is gained by other companies since they can now sell their product for more - but the shareholder value of the well you own is lost.
I agree Facebook's value has a speculative element to it - but its pretty clear that the money has been lost because the thing of value has been partially destroyed both by itself and by competitors like Apple and TikTok which is stealing its revenue.
Cash value is realized upon liquidation. Before that, it’s just paper.
Of course it was. You can debate how much of it was speculative but even in tech its not all made up.
It is conventional to describe a loss of value in both cases, but the second kind is much more obviously hypothetical than the first kind.
I agree there is more speculation but overall its cash flow went down a lot and thats not that speculative.
It went back to where it came from: nowhere. Market cap is a completely made up concept in the first place.
My point is everyone is quick to judge a new technology idea before they even try it or give it a chance.
I don't have a particularly strong opinion on VR stuff (I don't think I've ever put a VR headset on). I think I'll have a stronger opinion when they become more common, if they become more common. That's the part that's a little hard to see right now, but maybe I just don't get it.
("Full of" is also unclear. Are they doing better than Roblox or Minecraft? I understand those to be extremely popular with kids.)
This is called survivorship bias
Not jump from the bridge?
Oddly enough the adults in my life never seemed to appreciate the logic.
What again, makes me unease just like the OP. It can't be that obvious that the Metaverse is stupid, can it? People believe in much worse things. Why do we have a consensus?
Technologically speaking, though, everybody jumped on the 3d TV bandwagon. Where is it today?
Creating a successful game is not easy, it takes a certain skill set, and the vision that Zuckerberg has demonstrated (virtual offices, museums and meetings) seems completely boring.
I think there might also be a branding problem because a lot of the stuff that people might actually want to do in VR (guns, violence, sex, tentacles, unsavory avatars) can't really happen under the FB/Meta umbrella because they need to remain family and business-friendly, but that stuff obviously has huge revenue potential, so others will beat them to it.
I'm also wondering if VR will continue to remain niche all the way until we have direct brain interfaces where things actually look and feel real.
My sense of this is that it requires more imagination than Meta leadership is capable of.
They can definitely both be wrong, but one is a lot more likely to change in the near future.
anyway, I'll be over here living paycheck to paycheck doing my best to simply stay afloat during the recession.
a random number generator could pick stocks better than whoever runs my 401(k).
The animal best known for building up huge savings over the summer that it can live off of over the winter?
Quest is only expensive because it comes with all the processing infrastructure. Meta, as well as Apple and others, can split it up and offer a phone that can be connected to a VR headset. With subsidies, VR could be as cheap as $100. Why would somebody buy a big monitor or TV for gaming if they can have 3D for less?
Facebook has to spend now because there is no way to participate in the Metaverse if Apple was able to establish their platform. People shun green messages, they will never meet somebody who doesn't own Apple iGlasses or whatever they will be called.
> The UN-Habitat reports that 43% of urban population in developing countries and 78% of those in the least developed countries are slum dwellers. [1]
People can live without VR but will they keep living without it once VR is available? People can also live without mobile phones or cars but whoever can, owns one.
It's cheaper to build a VR headset than to build a house. Whoever is poor will buy a VR headset way before they buy a house.
Facebook is already handing out free internet in poor countries. They can double down and hand out free VR headsets. If they play it right, they will own the platform for remote work. Let children in slums grow up in the Metaverse and they will be native English speakers, but they will work for $1 per day.
This is an absurd statement. There is beyond enough sand, dirt, and land in the world for way more than all of the humans that have ever existed to have plenty of living space. The real (and in this context, irrelevant) question is - should we use it? There is enough.
> Why would somebody buy a big monitor or TV for gaming if they can have 3D for less?
Because the 3D experience as it stands is frankly pretty cumbersome and nauseating. VR is tolerable in short and focused stints. Humans currently need actual reality and the aforementioned living space for health and sanity.
You are technical correct but my point still stands. If the answer is no because we don't mine enough rivers and beaches, and we don't relocate enough of humanity, how will there be enough living space that people don't seek a distraction?