In September 2021 Meta Platforms, formerly known as Facebook, reached a valuation of a little over a trillion dollars. The latest figure, a little over a year later is $266bn. Mark Zuckerberg’s bet on the metaverse, a bet so big he changed the name of the company, appears to be going badly wrong. Costs are rising faster than revenue with no end in sign to this frightening pincer movement. Investors are fleeing the sinking ship in droves.
What is the metaverse. The simplest description I have found is that the metaverse is the Internet in 3D accessed by virtual reality headsets. A world of Avatars, where we can all be what we want to be and engage with each other in ways unimaginable on dry land, as it were.
I guess it is easy to see why a geek like Mark Zuckerburg, cheered on by an army of fellow geeks might get super excited about such a project. It remains me of a comic I read once where the mad scientist, a little old guy with specs, is describing to the tall, heavily muscled superhero the incredible powers of the latest weapon he has developed for him. He becomes so excited that he suddenly cries out – ‘ this weapon is amazing, I am going to keep it and rule the world’. Wham! The superhero punches him in the face, he goes flying and normal service is resumed.
The tone of the latest quarterly statement was defensive.
And while we continue to navigate some challenging dynamics — a volatile macroeconomy, increasing competition, ads signal loss, and growing costs from our long-term investments — I have to say that our product trends look better from what I see than some of the commentary I’ve seen suggests.
There’s still a long road ahead to build the next computing platform, but we are clearly doing leading work here. This is a massive undertaking and it’s often going to take a few versions of each product before they become mainstream. But I think our work is going to be of historic importance and create the foundation for an entirely new way that we will interact with each other and blend technology into our lives, as well as a foundation for the long term of our business.
Q3 2022, 26 October 2026
The implication is that Facebook’s core business, which reaches more than 3.7bn people monthly across a family of apps, no longer exists for the shareholders but is there to fund a risky plunge into the metaverse. It is as though Zuckerburg is trying to use all the money to make James Cameron’s film, Avatar, a reality.
Shareholders are as nervous as they would be if Elon Musk announced that all Tesla’s future revenues were going to be used to land a man on Mars. Sounds like an exciting plan for him but what about us, they might cry.
The old days when companies made money and gave it back to their shareholders are becoming a distant memory for some companies. And remember it took intense pressure from hedge funds to make Apple start rewarding shareholders with share buybacks and dividends. Left to themselves they too would probably have launched into some wildly expensive futuristic ventures; that’s what seems like fun for these geeky guys.
There is obviously tremendous value locked up in Facebook/ Meta Platforms but Zuckerburg controls the business. A complicated voting structure means that although he only owns 13.6pc of the company he has over 56pc of the votes. He really is king Zuckerberg.
Below are a couple of comments on the latest results.
Its Reality Labs division (in charge of all things virtual reality) is struggling, like, hard. The unit saw its revenue fall by almost 50pc from the same time last year to $285m, with losses widening to $3.67bn from $2.63bn last year – the division has lost $9.4bn so far this year, and the path ahead shows no sign of getting easier.
Digital advertising is another gaping hole in the hull, adding to a general sense of doom and gloom around big tech as advertisers continue to pull back. That decline in spending prompted Meta to offer disappointing revenue guidance of $32.5bn at the high end, and though it apparently plans to cut costs and increase operational efficiency, investors are far from convinced.
Trading View, 27 October 2022
What a vindication of charts. For some reason I have been receiving an endless stream of emails telling me what great value Meta Platforms is on the fundamentals but the charts have nailed it. Coppock turned down in September 2021 and the moving averages have been falling steadily since then too. The shares may be oversold at around $100 but there is no sign of a buy signal.
Metaplatforms is the ‘F’ in the FANG acronym which is tracked times three by the FNGU ETF and just look at that chart since November 2021, which I date as the peak of the bull market.
Strategy
The one I am keeping an eye on when it comes to the metaverse is Roblox, where both chart and fundamentals look much more promising. Below shows a cool chart for a cool company. There is a golden cross on the moving averages and the downtrend since the peak has been broken. You could say that Roblox has never really had a bull market because it has spent most of its time as a quoted company struggling with the head winds of rising interest rates.
Unlike Meta Platforms, Roblox’s engagement with the metaverse and a world of avatars is going well.
We had a solid Q2, and then we followed this up with July, which was absolutely the biggest engagement month in Roblox history, including all peak COVID times. And the month of July was a peak across regions and across demographics.
In July, our DAUs [daily active users] were 58.5m, up 26pc year on year. And our hours of engagement were 4.7bn hours across the whole platform, up 25pc year on year. I want to highlight that this year-on-year growth and this peak engagement also included our core U.S, Canada market, with DAUs up 15pc year on year and hours up 23pc and bookings up 14pc year on year in July. We continue to see accelerating growth in our over 13 DAUs, which were up 36pc year-on-year globally. And as older-than-13 users on the platform become more prevalent, this is a good harbinger of the potential size of this market and why we continue to be so optimistic. And then finally, we exited June bookings up 8pc year on year and July bookings up roughly 8pc to 10pc year on year.
I want to highlight that we are getting to the point where our 17 through 24 cohort is going to pass our nine through 12 cohort in size. Now, the 17 to 24 cohort is larger. But once again, this is a great signal of the potential size of our market across all ages. This growth, in addition to being powered by our amazing content developers and our amazing viral community is supported by our innovative tech, some of which is iterative and measurable, including improvements to our Roblox translation system, including the quality and personalization of our search and discovery system and even including things that might not be ratably noticeable such as the speed that our mobile app and game joins occur in this raw performance.
On the vision side, our layered clothing system is just a first step to very highly personalized avatars across the platform. Our voice system is rolling out and is a great sign of really the future of how people will communicate on platforms like Roblox. And our physically based material system has been widely acclaimed by our developers as the next step in taking Roblox to a more realistic look and feel. Finally, I want to highlight that we continue to work on innovative, immersive, native monetization systems, and we do expect to be rolling out a test of our immersive advertising system sometime later this year.
Q2 2022, 10 August 2022
This business is fizzing. Meta Platforms is all about retrenching as are some of the other mega caps but not these guys.
… we continue to hire at the same rate we did in H1 and are optimistic about continuing to bring great talent into the company.
Q2 2022, 10 August 2022
I am still nervous about actually buying anything in this market but there is good stuff happening which bodes well for an exciting future.
