Meta, the modern evil empire, a hard day

evil empire

Meta Platforms (ticker: META), the modern evil empire, released the fourth quarter of 2021 financial report, which scared everyone! Investors, however, may have overreacted.

What happened?

After the US stock market closed on 2/3/2022, Meta Platforms stock hit multiple records in one fell swoop:

  • It set a record that the market value of a single listed companies in the US was shattered in a single day, and fell by USD 230 billion in one day.
  • Meta Platform’s stock market value fell 26.39%, the biggest one-day drop since the company went public.
  • The U.S. stock market fell almost across the board because of one stock; the Nasdaq fell 3.74%, the S&P 500 fell 2.44%, and the Dow Jones fell 1.45%.

Fourth Quarter 2021 Financial Results

After the US stock market closed on 2/2/2022, Meta Platforms announced its fourth quarter 2021 earnings report, result as below:

  • Revenue was US$33.67 billion, an annual increase of 20%, in line with expectations
  • EPS of 3.67 missed expectations
  • Net profit of US$10.285 billion, a year-on-year decrease of 8%, did not meet expectations
  • Facebook Daily Active Users (DAU): 1.93 billion, up 5% YoY, misses expectations
  • Facebook Monthly Active Users (MAU): 2.91 billion, up 4% YoY, misses expectations
  • Meta’s company-wide cross-platform (Facebook, WhatsApp, Instagram or Messenger) number of daily active users is 2.82 billion, up 8% year-on-year, not in line with expectations
  • Meta’s company-wide cross-platform (Facebook, WhatsApp, Instagram or Messenger) monthly active users are 3.59 billion, an annual increase of 9%, which is not in line with expectations

Financial forecast for the first quarter of 2022:

Revenue: $27 billion to $29 billion (up 3%-11% y/y), lower than expected

What causes this happen?

Meta Platforms’ own words:

  • Inflation and supply chain challenges will lead to a decline in advertiser budgets, and there will also be a steady increase in ad placement and measurement resistance from regulatory changes.
  • Meta predicts that Apple’s new iOS privacy system introduced last year will bring strong headwinds to the company’s business, which may bring about $10 billion in revenue losses this year. Regarding Apple’s Privacy Policy, I suggest you refer to my other blog post “Why is Apple’s Privacy Policy So Important?”

Wall Street’s take:

  • Net profit, outlook, financial forecast, and the number of active users all fell short of expectations. Although revenue growth was in line with expectations, it was too low, only 20%, and user growth stagnated. These most basic, most critical financial, and operating indicators are simply far below estimate.
  • The revenue outlook for the first quarter of this year also fell short of estimates.

The management team is to blame

My take is straightforward:

  • Obviously, Tiktok has attracted a huge user base from Meta Platforms. What’s more fatal to Meta is that many Facebook and Instagram influencers have turned their main time to operating TikTok, which is the main reason why Meta’s users have dropped from double-digit percentages to single-digit percentages. The consumption power of Douyin’s main user group is the highest among all groups of teenagers. This has already begun to be reflected in the ARPU of Facebook and Instagram. ARPU is the source of golden goose that enterprises care about most!
  • The same is affected by Apple, but Salabu (ticker: SNAP) and Pinterest (ticker: PINS) have adapted very well. After the release of the earnings report, the stock prices of the two soared by 58.82% and 11.6% respectively!

All in all, Meta Platforms thinks it’s all Apple’s fault. But this was over a year ago (see my two posts previously “Why is Apple’s Privacy Policy So Important?” and “Apple’s small change caused US stocks evaporate 200 billion U.S. dollars in one day“), and Meta Plaforms has done a damage assessment before, so It is known that it will cause disaster to the company’s future operations. But the question is, why can’t the company’s management team come up with countermeasures? This is what I’ve always wondered about.

Meta’s relationship with Microsoft

Meta Platforms has been hailed by the US media as a modern evil empire. Twenty years ago, the owner of this title was Microsoft (ticker: MSFT). Many investors may not have noticed that the two companies are now closely related; the main reason is that the founders of the two companies are former seniors and juniors of Harvard University, both of whom dropped out of school to start their own businesses. The world’s favorite, all ranked among the top few richest people in the world; then the company began to get involved in various antitrust lawsuits.

In the real world, Bill Gates also takes good care of his junior, Zuckerberg. Since Meta Platforms began to be involved in the Cambridge Analytica case a few years ago, Zuckerberg, who holds the top five companies by market capitalization in the world, is really too young and too busy to find anyone for help. At that time, it was Bill Gates who helped him.

After all, Microsoft followed almost the same path 20 years ago. Bill Gates also personally called and asked Microsoft’s senior vice president of legal affairs to fully assist Zuckerberg, and introduced Microsoft’s heavyweight friends in antitrust, media, and Washington to him.

Because it couldn’t beat Amazon’s Twitch, Microsoft also publicly abandoned Mixer, the e-sports live broadcast platform it bought, in 2020, sent users of Mixer it operated to Facebook, and issued a press release asking users to transfer to Facebook’s game live broadcast.

The common enemy of Microsoft and Meta Platforms

In addition, facing the strong privacy policy of Apple, iOS platform domination on mobile application, and the charging policy of the App Store; the two companies even formed an alliance to support each other on various occasions and oppose Apple to the end. Because Microsoft believes that Apple is blocking its cloud gaming Xbox Game Pass service, it has deliberately set up obstacles to Microsoft’s games on iOS.

And Meta Platforms and Apple have had a deeper feud in recent years. In addition to banning IDFA (please see my previous two post as listed in related articles below) and making Meta Platforms what it is today, Zuckerberg has taken the trouble to publicly declare many times that everyone has forgotten that Apple’s iMessage is Facebook’s most likely direct competitor. Alphabet (ticker: GOOGL and GOOG) has also complained that Apple’s iMessage has bad intentions, which is one of the main reasons for stealing Android phone users to switch to iPhone.

evil empire
credit: Artapixel

Shoul investors take Meta into consideration?

There is now a company that has had a surplus since going public and is used by 3.6 billion people worldwide. Today it trades at a price-to-earnings ratio of just 17, has absolutely no debt, and has $48 billion in net cash on hand. If you don’t have any prejudice and hide the company name, annual revenue growth is 37%. Should investors consider it?

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2 thoughts on “Meta, the modern evil empire, a hard day”

  1. Thanks for your post. My intepretation is
    1. Apparently Tiktok gain users from Meta familiy with no doubt, same thought as you.
    2. PE multiple 17x is at all-time low attractive if compare with FB historical number
    3. To Meta management, a lot of jobs need to do and to prove, or Meta will retreat from top line of technology companies and become second tier. So will the stock price like Microsoft in the first decade of 2000s.

    1. Hi Brain, welcome visiting. I agree with you points. For long term investors, its multiple is attractive. But leaderships need to do somethings to restore investors’ trust.

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