Devin LaSarre's avatar
$18.9m follower assets
Some Rough Thoughts on $META
I've been a long-time holder of $META. There are plenty of headwinds for the company, including:

  1. Regulatory Hurdles
  2. ATT Impact
  3. Competition (TikTok)
  4. Macro factors (weakening consumer, reduction in ad spend)

Obviously, people are going to be glued to DAU/MAU, especially for Americas. And yeah, that's important, but I'm focused on 4 critical points:

  1. Reels Adoption Curve
  2. Pivot to Discovery Engine
  3. CapEx + Buildout Rate
  4. Progress on Verticles, Roadmap?

Reels Adoption Curve

Everyone is aware of how hard $META is pushing reels, and it looks like user adoption is going well - even faster than rollouts of previous media formats. I don't think people fully appreciate the implications of this.

Pulling time spent from other highly-monetized formats is going to depress earnings for now. There will be an extended lag time for advertisers to adopt the medium, optimize content, and scale budget. HOWEVER, users embracing the medium at an accelerated rate is a net positive longer-term. Advertisers will go where eyeballs are, and if reels ends up leading to higher time on platform, it'll shift to a tailwind and benefit all stakeholders.

Limited data to fully gauge at what rate this is happening, and what divergence there is between user/advertiser adoption, but could easily lead to some ugliness in tonight's numbers.

Pivot to Discovery Engine

Meta shifting from a social/interest graph to a discovery engine is likely the most radical and transformative move the company has ever made. Lots of far-reaching implications. Obv, social media is evolving past connecting to friends/fam. This is the driver behind TikTok's rise. Discovery engines have the potential to serve higher-relevancy content, increasing time on platform. From the creator perspective, substantially increases maximum reach. HOWEVER, creating a discovery engine for newer mediums, like reels, is no easy task. The amount of compute required to understand and serve short-form video is magnitudes greater than text-based content.

Looking for detail on this, hopefully they provide it - and hopefully it's pushed into harder by analysts in Q&A tonight. Insta monetizes at a substantially higher rate above TT - will be interesting to see how shift to reels changes this dynamic over time. If successful, I think META's scale will act as a turbocharger.

CapEx + Buildout Rate

Majority of current spend is not going to FRL, but rather datacenters, AI, and all the other necessary parts of building the discovery engine for core biz. From what I gather, buildout has slowed down a bit, so CapEx may come in lighter for the qtr, which should push up cash flow. IMO this isn't actually a positive. Want to see all pieces of the puzzle going full steam ahead, but this should smooth out over coming qtrs/years.

Progress on Verticles, Roadmap?

As management has laid out before, this is the verticle stack they are tackling:

  • Ads on top.
  • Then community tools.
  • Messaging.
  • Shopping.
  • Payments.

$GOOG is the unequivocal leader in intent-based advertising. $TTD is showing impressive strength in CTV. $META dominates a great deal of the rest of the digital realm. But users aren't loyal to any particular platform - on social, they will go where the quality content and greatest utility is. Hoping to see greater detail on:

  1. Creator tools incentivizing FB/Insta as the primary platform for top creators.
  2. Ways for brands to sell product + connect
  3. Adding utility and ease-of-use with payments

Ideally, efforts will result in building low-friction user journies entirely on-platform. Will reduce friction, leading to a better user experience. Critically, this will keep the majority (if not all) of the user journey on platform, leading to a massive increase in FP data, which has become essential post-ATT and will become even more important as additional privacy measures are inevitably passed in the future.

I'm not going to dive into valuation in this post. I have my own model, but there are plenty of different ways we can dice it. Topline, op margins, blah blah. Have to have some kind of a view of what % of CapEx shifts to maintenance spend. Can take a stab and guess what FRL will do 5-10 years out, but probably best just leaving it a big ???. If long, have to take a view that you're betting on the jocky, not the horse, and that Zuck will be able to produce some reasonable return over COC; though I can't envision it being as lucrative as core biz.

I just puked out all these thoughts. Sorry in advance for the typos.

Would love to hear your thoughts, comments, and any pushback you can think of.
Sidni Standard's avatar
I think you might be severely underestimating the public sentiment towards $META. Adam Mosseri of IG posted a video to TikTok addressing the IG post that both Kim K & Kylie J made about “making IG IG again” and his answer was pretty much that they don’t care what the public wants, they’re trying to pretty much become TikTok. Below are some of those vids, and there are more that come out everyday:

Devin LaSarre's avatar
@sidnistandard I followed that the other day. I try to remain objective - the same exact oppositions were expressed in previous iterations of new features/media on FB and insta. People simple hate change (until they adapt). Reels usage adoption seems to indicate the overall sentiment and experience are quite positive.

I appreciate the pushback though!
Eric Messenger's avatar
Probably the most asinine valuation I’ve ever seen for a company that’s performed like Facebook has the last decade. When they were trading at P/E & EV/EBIT multiples below 10.
Devin LaSarre's avatar
@wall_street_deebo I don't disagree with you. But not as easy to slap on a multiple and compare to history though when the company has entered a massive CapEx cycle + spend on FRL which we have no visibility on ROC for.

I'll continue to be a long-term holder, but I have no doubts that there could easily be short-term pain related to some of the large shifts the company is attempting, along with weak share performance if people focus on ugly short-term metrics (which I am not terribly concerned with)

Will be interesting to see unfold regardless.
Rihard Jarc's avatar
Very good read agree with you on many points and the shift to AI discovery vs social is a monumental shift can go either way.
Devin LaSarre's avatar
@rihardjarc Agreed. I've been a long term holder of the name, but everyone has to concede the spectrum of potential L-T outcomes for the company has never been wider.
Rihard Jarc's avatar
@devinlasarre Yes. The "attack" from $SNAP with Stories was more in $META's social realm (where $META had a big moat with it's already established network), this challenge now with AI Discovery is where they do not have the upper hand and will need to fight a bigger guy TikTok.