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Comment by gen220 | Hacker News Reader

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).

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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.

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.

> 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/) 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...)

I don't know if we can draw much from the comparison to WeChat.

WeChat is effectively an operating system for the domestic Chinese economy within a single app, it's 10-100x more complex than a messaging app, and it enjoys official blessing that WhatsApp would never obtain in any market. You can hardly survive in China without WeChat, it's so tightly integrated into everyday life.

They could monetize AI by using it to boost their own properties.

For instance they could replace human content moderators, which is costing them billions. Maybe offer some "Meta premium" which summarizes and lets you ask questions about your WhatsApp, messenger chats. Perhaps improve ad targeting by understanding user post content better?

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.

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.

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.

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.

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

I think the question of "what is the value of non-targeted ads / contextual ads", "what is the risk of an aging population", "how to price tiktok risk" are all also a part of it.

The issue I have with them is that social media is quite a shaky thing on the long run - every generation is pretty much resetting the whole game, so to speak (i.e. your network effects might matter for existing groups but not for the new ones).

This, combined with economic uncertainty, makes me think "if the stock tanks for a relatively long period of time, what is the inherent value that gives me trust that they will recover?"

I think even for pure software companies, META is quite susceptible to disruption in this regard.

Not to mention, if Zuck decided to double down on his doubling down, he could have. Then we would have seen even lower numbers than 90. Since unlike other companies, META lacks checks and balances, that is also another point to be worried about, if you want to invest for long term.

They just won in court like two days ago against the FTC to go forward with Within's acquisition.

I'm more talking about the fact that, if there were a new Instagram or WhatsApp for VR that threatened their social media hegemony, Meta would most certainly be blocked from acquiring it. Especially because it seems the current FTC regrets that previous FTC administrations green-lit the WhatsApp and Instagram acquisitions.

The Within case isn't informative, IMO -- Within wasn't building social media applications. It was more a case of an acquihire. The VR ecosystem is too early to have an Instagram/WhatsApp moment, yet.

Fair, I agree they probably couldn't buy something like Clubhouse.

I brought up Within because it was talked about a lot on fin-Twit as proof/sign they can't M&A anymore.

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.

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

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! :)

Disagree. If they are able to cut costs a bit more $180 is a perfectly reasonable value price for metas revenue.

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.

Do they? The LLM they released was much worse than GPT-3.

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.

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.

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

That’s incredibly naive. ChatGPT is not the state of the art. Not even close.

> 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.

I guess you could train the ultimate toxic shitposter and then do the opposite of what it says

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

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.

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

“ There are only two platforms where AI/ML will be delivered”

Why would you believe these are the only platforms?

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.

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.

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

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

That's a ridiculous forecast.

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.

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

… 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.

Yep, you sound like the same person who dismissed internet at 9600 baud because you lack the imagination of what the internet would look like at 1Gbps

25% of time != 25% of economic value.

There's 122 waking hours in a week, so by way of example: the USA's workforce of 155 million (much smaller than the population as a whole) does an average of 35 hours per week, which means the entire productive output of the economy is squeezed into 12.9% of the entire population's waking hours.

Some of the non-productive time involves other people getting paid, but (excluding taxes and rent which I don't think make a difference in this scenario) not all of it.

Also think about how Linux and Wikipedia are free even if your internet connection and device(s) aren't.

The only thing you need the outside world is food (including healthcare) and a climate controlled 20 x 20 room with plumbing.

everything else can and will be simulated.

It’s obviously going to be $21T

Do you think Metaverse ad revenue will not cannibalize social media revenue, as people shift their attention from one to the other?

Or that Metaverse attention will somehow be 100x as valuable as social media attention (current global social media revenue is $200ishbn)?

Bingo!

At the end of the day, attention is all that matters and the most valuable commodity.

Current social media captures only 10% of all human experiences that are possible in the Metaverse. We haven't even fully tapped 7 Billion people's productivity and wealth (even in the current mobile world). So, the potential is 200b * 1000 in about 13 years

but where does the 500x come from? 2x for population....and then you assume that social media is 10% of the world experience....not by reckoning. they capture....a pittance of the experience. they are like wakes in the wave....the wave is the experience, the wake is social media. Due to attention issues and limits on multitasking...how much can we honestly expand...c'mon. 10x sure....maybe even 20x....so a 4T market?

Don't forget World GDP is also expanding.

Don't forget productivity of the Rest of the World will catch up with US (and making each attention second more valuable to the advertisers)

Don't forget most activities will go to Metaverse.

Finally, get out of Mobile-Phones-will-capture-all-long-distance-calls-revenue framework

> Metaverse is a $20 Trillion market by 2035.

That's about the current US GDP.

World GDP by 2035 is $200 Trillion

People will spend at least 4 hours or 25% of their waking hours in Metaverse (It'll be more, but I'm being conservative), at least $20 Trillion of human activity will occur in Metaverse (because bits are cheaper than atoms)

Well that is a thesis. I disagree with most of your thesis, though world gdp at $200T i do agree with.

But I appreciate you trying to lay it out, i'd say metaverse spending will be less than 2% at that time. Most of the world wont' even be near the meta verse in 10 years.

This is absolutely coming from a privileged view.

Rich people who can take vacations, go to concerts, eat at restaurants, hang out with friends, afford to play golf, tennis and a decent home of course want to live in the real world.

There are 7 Billion other people who would love to have that same experience even if it's virtual for the same price as a mobile phone.

I don’t think your view is all that privileged. I just simply disagree that poor people will spend money in any meaningful way in the meta verse.

I mean think this through, you can’t even pay for the basics of life like food and shelter, and you’re going to dump 25% of your spending on the meta verse?

I mean, I’m guessing you don’t yet have a family as once you do you’ll realize you’ll spend most of your money providing for them and not on virtual fun.

Poor will have the highest utility in the Metaverse, just like the internet.

But far away the least amount of money to spend. Surely you can see that?

it throws off your entire thesis. If in your dystopian future, after the necessities of life are taken care of and yo have no money how will any percent of GDP be spent in the metaverse

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