Description:
Over the past 4 months, Meta/Facebook stock has plunged 38%. It’s clear that Apple’s ad tracking transparency, TikTok’s fierce competition and macroeconomic factors have all spooked investors. So in the video I chat with Divya Narendra (yes, the guy from The Social Network, and also SumZero founder) to discuss what he thinks of Meta’s future, and the current valuation.
Check out SumZero, and let Divya know you saw this interview!
SumZero on YouTube: https://www.youtube.com/channel/UCgE3b0a0VFA6WnJv7Oj4bIw
Website: https://sumzero.com/
Divya’s Instagram: https://www.instagram.com/divyanarendra/
Divya’s Twitter: https://twitter.com/DivyaNarendra
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★ ★ CONTENTS ★ ★
0:00 Meta Stock is Dropping!
0:51 The App Tracking Problem
2:37 Meta’s Network Effects
3:15 Responding to Competitive Threats
4:55 Responding to TikTok
7:07 The Hardware Play
10:01 Solving Real World Problems
11:10 The Importance of AI
13:32 The Valuation
15:17 Divya’s Work on SumZero
16:23 Sharesight
DISCLAIMER:
Neither New Money or Brandon van der Kolk are financial advisers. The information provided in this video is for general information only and should not be taken as professional advice. There are risks involved with stock market investing and consumers should not act upon the content or information found here without first seeking advice from an accountant, financial planner, lawyer or other professional. Consumers should always research companies individually and define a strategy before making decisions. Brandon van der Kolk and New Money are not liable for any loss incurred, arising from the use of, or reliance on, the information provided by this video.
#meta #facebook #stockmarket
Take a look at this: this is the one year stock price chart for meta, the world’s biggest social media company. As you can see, it doesn’t look so
good at the time of recording down 44 year-to-date. But if you look at say revenue or net income or free cash flow over time, this company has shown
nothing but success again and again so being a confused meta shareholder myself. I thought it best to get a second opinion. What is going on behind
the curtain, and should we be worried so to help me out, i reached out to divya narendra the guy that originally thought up the idea for facebook
com yeah divya is the guy and, interestingly, he’s been a facebook shareholder for a very long time. So we sat down for a two hour chat the other day
and the first question i wanted to ask him: was around apple and google’s clamp down on app tracking, which is limiting meta’s ability to serve
relevant ads, and the question i asked him was: do you See that as a fundamental problem for meadows business going forward well, there’s no question
that it’s a problem like uh. You know, i think, that’s that’s indisputable. The question is, is it priced in and i think a related question is: will
they solve that problem? The most recent headwinds are part: ios ios145. You know this whole apple, app transparency, tracking framework that apple
has developed, but also kind of just the fact that tick-tock has become as popular as it has and then there’s a lot of stuff going on
Oh, the cost of capital has changed and risen. That’S affected. You know really all of tech and a lot of the higher multiple equities have gotten
absolutely smashed. But i think, if you put yourself in the position of a marketer somebody who is putting ad dollars to work, ultimately, you are
going to spend where your audience lives like
So look with ios changes. Ad relevance, you know, probably takes a hit at the end of the day. I still think marketers are on the margin. They’Re gon
na go with like the best ad tech they can find on a platform with their audience
Really. The question is, like has anything changed about the the overall network effects of the business and i don’t think they have. I think that’s
the key question here: have the network effects change because the thing is apple and google can put out more and more restrictions on privacy and app
tracking and sure that sucks for advertisers like meta but meta’s apps all have one key advantage that separates Them from the rest of the pack – and
that is the raw user numbers, currently 2.82 billion daily active users within their family of apps. As tv said, meta has the largest collection of
humans
That is very difficult for other businesses to topple, but of course you never want to get complacent right. So how does facebook ensure they keep
their number one position so zuckerberg love him or hate him. The guy is very much attuned to existential threats and he’s very, very quick to react
to competitive threats when he bought instagram. The company had like 12 employees, zero revenue
People thought he was crazy. You know when he bought whatsapp same thing. They were like, maybe a few dozen. If that employees zero revenues, they
actually had
They had a one dollar subscription model right and he mixed the that sole source of revenue that whatsapp had. If you think about that, like that’s
very unintuitive, it’s very counter-intuitive, i’m like okay, my company’s doing a million dollars a year in sales. You know what let’s ditch that
product entirely and let’s just forget about it: let’s just fund the business ourselves until we get to a scale where we can then figure out the
optimal way to monetize. That is very interesting insight into how meta has been able to keep their top position over the past 10 years
They ditched the monetization of the platform. You know sometimes it’s counter-intuitive, but if you zoom out, then their actions always serve the
overarching goal. But what’s interesting is that now in 2022, meta faces two rising competitors in snapchat and tick-tock and they can’t simply
acquire them. So talking about responding to competitive threats, what’s meta’s strategy here, i think what you’ll see is that facebook will be that
much quicker to incorporate new use cases into their existing apps reels
As this, like that’s kind of their focus, that’s their bread and butter, that’s kind of where it started shortly. These, like short, form viral
videos. It’S like one of a dozen use cases on facebook‘s ecosystem right. Like you go to facebook because you’re you know, maybe you want an update on
your your friend’s newborn child, or maybe you want to like message your buddies in india on whatsapp, or maybe you want to like, buy a used chair on
marketplace
So if you so, it’s like you know, if you think about it like, are you going to ditch your network on instagram to suddenly use snapchat just because
they have ephemeral content, like probably not i’ve found that, though, there’s been a proliferation in other apps, i mean. There’S no end to it:
there’s no single, like app family, that has the breadth of use cases in combination with the network size that facebook does, where i’m worried about
facebook, not existing five years from now. That is a good point, while snapchat and tick tock have their niche characteristics that make them popular
meta’s ecosystem is a lot more broad and offers many more use cases other than simply entertainment, and that’s how they’re going to maintain their
dominant market position moving forward act Quickly to offer new features that other rivals, think of but at the core of the business offer
functionality that has real world use and solves real problems. But i think the key word that divia mentioned there is ecosystem right now
Through. This has prompted meta to spend billions of dollars on developing ar and vr devices to expand their ecosystem. To also include hardware.
Meta will soon open its first physical retail store
They jumped into the hardware business as divira is about to explain. This is strategic in more ways than one. There is no question that meta sees
apple as a direct competitor when you’re a company that has publicly stated that the ios headwind is a 10 billion dollar annual headwind. It’S pretty
obvious that there’s a lot at stake
It’S like they don’t want to be de-platformed and the best way to to avoid that or circumvent. That problem is to build your own ecosystem and by
doing so you acquire – and you can rely on much more first-party data as opposed to third-party data, obviously with hardware, if you’re on a quest 2
or any of their future. You know if you’re on the ray-ban glass, that they, where they have a partnership like that puts them in a good spot because
now like they can leverage the fact that you’re on their hardware to to sort of target. Um no question
I think that changes because of meta right, like they are working on smart devices, wristbands glasses, vr headsets, and there could be others that
we don’t even know about. But if you just think about the prospect of you know the cell phone market being disrupted and you think over the years like
if there’s a viable product like let’s say it’s, the stories glasses that they that they have, if that form factor, is delivering the same Information
that you can get from your cell phone, in terms of in terms of it being as digitally connected to the internet as your cell phone would be. But it’s
delivering you that information in your field of view, so suddenly when you’re driving – and you can’t find you know your destination, you can talk to
your glasses. It’Ll
It’S not just a gimmick. I think hardware is probably the number one way meta can respond to all competitive threats. At the same time, you know, as
divya just described one they can allow their advertising business to flourish unimpeded and won’t have to worry so much about the new ios or android
update, but also two. They can then tailor the hardware to unlock the full magic of what their software could be
Divi uses the example of navigation systems being overlaid on top of the road, while you’re driving through your ar glasses or imagine, building a
new home and being able to walk through it and customize it in vr before it gets built. There’S a lot of extremely practical use cases to matters ar
and vr hardware development, which does actually open up a lot of new businesses and new revenue streams, as opposed to just hardware acting as a
shield for the ads business. But interestingly divia mentioned that beyond hardware. There’S an even more critical technology that facebook is
implementing
I think really what people should focus on is like what are the technologies that they are investing in, that are going to create like new
communication use cases and solve real problems, and ai is a big part of that. A big big part of that, like virtual assistance, is heavily dependent
on ai right and so being able to have a device on your person that is actually smart and can kind of get you what you want right. It’S capable yeah
yeah, like as opposed to like siri or kind of some of the stuff that you see with alexa. You know like stuff, that’s like genuinely smart, you know
yeah, that is a big part of
Here’S another great example: there’s clearly been a trend towards virtual work because of covid, but now imagine you’re at a let’s say, you’re at
you’re working at a large company. Maybe you have a colleague or maybe you have a customer who happens to be in africa or they happen to be in latin
america. But maybe you don’t know spanish right to be able to talk to that person in english and have him understand you in spanish that translation
technology is exactly the kind of artificial intelligence that facebook has already developed. So it’s just a matter of time when these technologies
get incorporated into their devices, which i’m very confident and bullish on a lot of stuff
Oh, is it a cool thing like like, for example, like an emoji, or something like that or or like filters, but but is it solving a problem or not if it
is suddenly you’ve got? You know, i think, a big market in front of you and look if the cell phone market is disrupted even by 10, where you know some
meaningful subset of people are like. You know what i’m going to leave my phone at home, because i’ve got this other thing, you’re going to see a
complete re-rating of facebook or meta that stock is going to rip. So once you factor in the total strategy, it seems pretty smart, develop the next-
gen hardware of the internet and then develop strong ai that helps solve real-world problems and unlocks the full potential of that hardware, and the
result is cell phone industry disruption. Multiple new untapped revenue streams and thus diversification to the business model and then bonus
Neta is interesting because, though it is a mega cap, it’s an extremely controversial name with quite a bit of volatility, so you know, i think, one
of the things that buffett talks about a lot is this idea of like mr market. You know this. This, mr market, construct, that you know you got to do
your own homework to figure out what intrinsic value is for a given asset. But then it’s like the question is well
Is this a real opportunity, or is this a value trap? You know like did a stock tank 50 because it deserved to or was it an overreaction right or was
it an underreaction right like these are the questions that you know start to come to mind, so i think meta, because the stock’s been a you know. A
little bit of a roller coaster has, i, i think, start it’s perked people’s ears and attention even values, even that, like monies pabrai, who you
know, we had a lengthy conversation with him about it. He is a deep value investor, so a company like metas like would historically never be on his
radar right because he’s used to paying you know five times, earnings for something earnings, yeah even 20 times earnings, i think for him. It started
to get interesting because, okay, like now the stock’s at you, know 10 11 times ebitda 15 times earnings depending on what metric you want to look at,
has has anything structurally changed here
That was my discussion with divia narendra on metastock. I hope you enjoyed it. He was extremely generous with his time. So i want to say a very big
thank you to him, for you know going through all of this stuff with me, and you know, even just being open to chatting on youtube and discussing his
ideas with all of us here on the channel
So you know as a way, maybe to say thank you to him for the interview, if you wanted to head over to sumzero and sign up or even just go over and
check it out, and let them know that you saw this interview, i’m sure divya would Really appreciate it and i would appreciate it as well. This video
definitely isn’t sponsored by sumzero or anything like that. There’S no money involved or affiliate program or anything like that, but you know he’s a
good guy and he’s doing great work. So i did want to give him that plug, but apart from that guys that will just about do us for this video
If you did enjoy it subscribe. If you’re new around here, you can check out further links down in the description to all my other stuff, but guys
that’ll do us for today, thanks for watching and i’ll see you guys next time. This video is brought to you by sharesight, sick of tracking your
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Source: https://www.youtube.com/watch?v=F_H2MZqjWWI
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