172: America’s Companies: Should You Invest in Meta?

Welcome to The Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better, helping you to understand the current world of financial planning and investments. Here are your hosts, Josh Robb and Austin Wilson.

Austin Wilson:

All right. Hey-hey-hey. Welcome back to Invested Dads Podcast, the podcast where we take you on a journey to better your financial future. I’m Austin Wilson, research analyst at Hixon Zuercher Capital Management.

Josh Robb:

And I’m Josh Robb, director of Wealth Management at Hixon Zuercher Capital Management. Austin, how can people help us with our podcast?

Austin Wilson:

We would love it if you would subscribe, if you’re not subscribed. So hit that follow, plus, whatever that subscribe button on your device or player is, hit that. We’d also love it if you’d visit our website and sign up for our weekly newsletter to get notified each and every Thursday when a new episode drops. You get a nice little email, it has a nice little summary about what we talked about. Gets pretty well done. So please do that. But today, Josh.

Josh Robb:

Yep.

Austin Wilson:

We’re going to be continuing our series looking at America’s companies.

Josh Robb:

Yep.

Austin Wilson:

Some of the largest companies here in the United States. So we’re going to give a little background. We’re going to talk about the company, what it does, how it makes money, and a bit about their financials in some certain areas of their business.

Josh Robb:

And always, we’re talking about publicly traded companies.

Austin Wilson:

We are.

Josh Robb:

That does not mean that it is a recommendation or that we are suggesting that you own this or buy this in your portfolio.

Austin Wilson:

So please talk to your advisor before you take any position, long or short. Great reminder, Josh.

Josh Robb:

Yep.

Austin Wilson:

Thank you for that, Chief Compliance Officer.

Josh Robb:

Mm-hmm.

Austin Wilson:

Hat’s off to you. Today we’re talking about Meta Platforms, formerly known as Facebook, and we’re going to get to that.

Josh Robb:

Yep.

Austin Wilson:

Something that pretty much everyone in the world in some way, shape or form uses to some extent. There’s like three billion monthly active users out of seven billion… Might have just crossed eight billion on the planet, but still that’s a huge…

Josh Robb:

A good chunk.

 

[1:50] – Meta Overview

Austin Wilson:

…proportion of the world using some of their products. So let’s give a little bit of overview of the company. So Meta, the company we’re talking about here, formerly known as Facebook, they build useful and engaging products that enable people to connect and share with friends and family through mobile devices, personal computers and virtual reality headsets…

Josh Robb:

Mmm.

Austin Wilson:

And in-home devices, which was called their Portal or whatever. Facebook…

Josh Robb:

Oh yeah, oh yeah…

Austin Wilson:

Basically FaceTime. Remember that?

Josh Robb:

Yeah, it moves.

Austin Wilson:

Yep. Yeah, kind have a cool thing.

Josh Robb:

Weird. Yeah.

Austin Wilson:

So Meta, which allows outside developers to build apps to integrate with Facebook, boasts three million monthly active users.

Josh Robb:

Billion with a B?

Austin Wilson:

That’s a billion with a B.

Josh Robb:

Wow.

Austin Wilson:

In addition to its namesake platform, Facebook owns photo and video sharing site, Instagram.

Josh Robb:

Oh, okay. Facebook Messenger. Yep.

Austin Wilson:

And WhatsApp.

Josh Robb:

What’s App?

Austin Wilson:

WhatsApp!

Josh Robb:

What’s App with you?

Austin Wilson:

WhatsApp, Josh. And virtual reality platformer Facebook Reality Labs. The company generates about 55% of sales outside the US.

Josh Robb:

Okay.

Austin Wilson:

You can look at how they operate in two different segments.

Josh Robb:

Mm-hmm.

Austin Wilson:

First of all, you have the family of apps. It’s how they report it. So family of apps accounts for get this, 98% of the company’s revenue.

Josh Robb:

And the family of apps are?

Austin Wilson:

Things like Facebook, Instagram, Messenger, and WhatsApp.

Josh Robb:

So the things you download onto a device…

Austin Wilson:

Your apps.

Josh Robb:

Yeah, your tablet, your PC, your iPhone, whatever you’re doing it on.

Austin Wilson:

Yup. So the company generates substantially all its revenue from selling advertising on these platforms, right. To marketers.

Josh Robb:

Okay.

Austin Wilson:

So ads on its platform enable marketers to reach people based on a variety of factors, including age, gender, location, interests and behaviors. Marketers purchase ads that can appear in multiple places, including Facebook, Instagram, Messenger, and third-party applications and websites, even.

Josh Robb:

So third-party would be like, I create a game…

Austin Wilson:

Yup.

Josh Robb:

But it uses the Facebook infrastructure platform to run it.

Austin Wilson:

Yeah.

Josh Robb:

Gotcha.

Austin Wilson:

Yep, yep. You can build an app through Facebook.

Josh Robb:

Gotcha.

Austin Wilson:

So that’s 98% of the revenue, right? So essentially the whole business. Then you have the Reality Labs.

Josh Robb:

Reality Labs.

Austin Wilson:

Reality Labs accounts for the remainder of revenue. So this is augmented and virtual reality products. Meta Quest is their main product that lets people defy distance with cutting edge VR software. And then you have Facebook Portal, video calling devices. Reality Labs generates revenue from sales of customer hardware products like their Oculus Quest or the Portal we just talked about. Software even also, and content.

Josh Robb:

So Facebook owns Oculus.

Austin Wilson:

Yes.

Josh Robb:

That’s the hardware…

Austin Wilson:

The VR device that you wear.

Josh Robb:

Okay, gotcha.

Austin Wilson:

Yes. So let’s take a step back. Geographically speaking, the company’s pretty global. However, it’s based in Menlo Park, California. And again, 55% of the revenue comes from outside the US. The company has offices in approximately 80 cities and has more than 15 data center facilities all around the world.

Josh Robb:

Mm, okay.

 

[4:39] – Meta’s Sales & Marketing 

Austin Wilson:

So pretty global in terms of the company. So let’s talk about sales, talk about marketing.

Josh Robb:

Yup.

Austin Wilson:

So they use a global sales force to attract and to retain advertisers. It also serves advertising customers through a self-service ad platform. It works directly with these advertisers as well as through advertising agencies and resellers. Meta also invests in and relies on self-service tools to provide direct customer support to its users and partners. And I’ve used some of that customer support when Facebook Payment or whatever didn’t go through or whatever it would be, and it worked out great. Either the AI was really good or it gave me a real person really quick.

Josh Robb:

Nice.

Austin Wilson:

So that was pretty good.

Josh Robb:

I think that’s the key to success. Moving outside of Meta real quick.

Austin Wilson:

Yeah.

Josh Robb:

If you’re going to use AI or a robot to answer questions, you need a very quick way of figuring out if they’re actually going to get the job done or you need to get to a human person, because…

Austin Wilson:

It should take a minute…

Josh Robb:

There’s nothing more frustrating than it keeps…

Austin Wilson:

Looping through.

Josh Robb:

Trying to figure it out and you’re like…

Austin Wilson:

I know.

Josh Robb:

Just let me talk to somebody.

Austin Wilson:

Yep. So meta spent 2.99 billion, 2.26 billion and 1.57 billion on advertising in ’21, ’20 and ’19 respectively.

Josh Robb:

Okay.

Austin Wilson:

So that’s grown almost double…

Josh Robb:

Almost 3 billion it spent last year.

Austin Wilson:

Yeah, exactly.

Josh Robb:

Okay.

Austin Wilson:

As part of its strategy, the company has made, and intends to continue to make, acquisitions to add specialized employees in complimentary companies, products or technologies. This was made evident when they actually bought Instagram for like a billion dollars.

Josh Robb:

WhatsApp.

Austin Wilson:

What’s App?

Josh Robb:

WhatsApp.

Austin Wilson:

What’s App with what?

Josh Robb:

That. They bought that for a lot.

Austin Wilson:

Exactly. But the Instagram acquisition, a billion dollars, was thought to be crazy and way expensive and no one’s going to make any money on this because Instagram wasn’t monetized at the time.

Josh Robb:

Right.

Austin Wilson:

And look what Facebook’s done with it. It is an ad generating machine. And really, millennials and Gen-Zers, they’re not even using Facebook.

Josh Robb:

Yeah.

Austin Wilson:

They use Instagram.

Josh Robb:

Right.

Austin Wilson:

Instagram is where they go and that’s where they’re acknowledged, or valuable.

Josh Robb:

Not only that, but I’m of the mindset… I’m hesitant to click on sponsored or links of advertising in these things just from how I am. If I see something on, let’s say Instagram, I’m like, Oh, that’s interesting. I’m hesitant to click that link.

Austin Wilson:

Yeah.

Josh Robb:

I just want to go to the website, so I know it’s not something weird, but I know a ton of, especially young people, that’s where they get their recommendations and ideas. It is straight from those advertising…

Austin Wilson:

They’ll buy right through it.

Josh Robb:

Yeah, it’s crazy.

Austin Wilson:

It is crazy. Okay, you’re going to think I’m crazy.

Josh Robb:

No, I don’t. No.

Austin Wilson:

I’m a middle-aged millennial.

Josh Robb:

You are?

Austin Wilson:

So I’m not a Gen-Zer.

Josh Robb:

Nope.

Austin Wilson:

Or a younger millennial. I’m in the demographic that I think is less likely to use much of anything because I feel like people older than me are more Facebook users.

Josh Robb:

Mm-hmm.

Austin Wilson:

Facebook’s okay. I have it. Really easy to sell things. But people younger than me use Instagram. I don’t use Instagram at all. I don’t even have an Instagram.

Josh Robb:

Just an out.

Austin Wilson:

So, I’m in that weird in-between thing. And you’re all over them all.

Josh Robb:

Not really.

Austin Wilson:

You got a Twitter.

Josh Robb:

I got…

Austin Wilson:

Three followers. I’m one of them.

Josh Robb:

Yep. I’m all in on not being active, so…

Austin Wilson:

Yeah, exactly. The Invested Dads are pretty active.

Josh Robb:

Yeah, we are.

Austin Wilson:

That’s what I’m saying. So anyway, that’s part of the strategy there. Meta also anticipates that additional investments in its data center capacity, because lots of data going on with all of these users around the world, their servers, their network infrastructure and office facilities, as well as scaling its headcount. So in hiring people to support growth, the company expects capital expenditures this year to be in the range of 29 to 34 billion. Very much higher than it has been in the past, by the way, we’re going to get to. Total expenses to be 90 to 95 billion, again, higher than it has been. So, the company’s spending a lot of money right now, and a lot of that is going to the Reality Labs kind of virtually reality…

Josh Robb:

They pushed hard into that side of things.

Austin Wilson:

Yes. Wall Street doesn’t necessarily like it, and we’re going to talk about that in a little bit. But they’re just saying, Nah, we’re going to do it anyway.

Josh Robb:

Yes.

Austin Wilson:

In a big way. So, a little bit of background.

Josh Robb:

Yes.

 

[8:28] – How Facebook Became Meta & It’s Background 

Austin Wilson:

About Meta, or Facebook as it was formerly known. Facebook, the company, the product specifically was launched in 2004 by Mark Zuckerberg when he was a student at Harvard. It was an online version of the Harvard Facebook, is what it was originally known as. That’s 2004. I got Facebook… My first one, I think I got in 2006.

Josh Robb:

Okay.

Austin Wilson:

So, I’ve been on it almost from the beginning. It’s definitely changed a lot.

Josh Robb:

Originally, if I remember this right and you can correct me, maybe you remember too: didn’t you have to have a school email address to sign up for it, originally?

Austin Wilson:

You did probably in like ’04. Yeah, I did not in ’06. Did you? When did you get on Facebook?

Josh Robb:

I feel like early on, I did. And I feel like that was one of the things that they checked you with.

Austin Wilson:

That was about the time you were in college?

Josh Robb:

I was in college in 2004 and I’m just trying to remember…

Austin Wilson:

You and Zuck, you’re like the same age.

Josh Robb:

Yeah, not the same school. But yeah, I feel like that was one of those weird things about it, early on. And then they expanded out of there.

Austin Wilson:

So, flash forward about eight years, in 2012. So now when I was in college, Facebook began publicly trading after filing one of the largest IPOs in US history, so the largest…

Josh Robb:

They used big font?

Austin Wilson:

Yeah, big… IPO in like, 89 font. IPO stands for initial public offering. That’s where the company goes public for the first time on the market. That was in 2012. And I remember sitting in finance classes in 2012-13, when Facebook was just public and we were all like, oh, look, this company’s never going to make any money. Why would you buy Facebook stock? This is ridiculous…

Josh Robb:

And it went down pretty hard early on.

Austin Wilson:

Oh, yeah. And then they had this amazing run…

Josh Robb:

Because they showed they could earn ad revenue.

Austin Wilson:

Oh, yeah. So that was 2012. In late 2021, the company changed its name from Facebook to Meta Platforms in an effort to align the name of the company with where they saw the greatest growth. So really the company… The way I see what happened in late ’21 carrying through 2022, Mark Zuckerberg’s like, Okay, listen, I got all of these apps. They make great money. There is no better way for advertisers to reach people than through Facebook ads. It’s the best advertising in the world, but the growth is definitely slowing. We can’t grow at this speed forever. We know that that’s not where the future is in terms of growth, but it’s a great business to generate cash and have stable revenue.

Well, then he’s like, I need to think of something new and exciting that has a lot of growth ahead of it to really supplement a slowing business. Because advertising in itself, it’s a pretty slow growing business. Online advertising just grew so fast until it got penetrated as it is now.

Josh Robb:

Yup.

Austin Wilson:

So this was their effort to say new and exciting way…

Josh Robb:

We can do more than just Facebook…

Austin Wilson:

To grow again. And in doing so has really cut the stock in half.

Josh Robb:

Yes.

Austin Wilson:

That’s where that is. So that is a little bit about the background about Facebook. So Josh, have at it.

 

[11:25] – Dad Joke of the Week 

Josh Robb:

All right. I have a Facebook joke for you.

Austin Wilson:

Facebook joke of the week?

Josh Robb:

Yes. Dad joke of the week about virtual reality.

Austin Wilson:

Okay.

Josh Robb:

One of the most popular things to do with virtual reality…

Austin Wilson:

Is?

Josh Robb:

Reading books. Yeah. It’s a novel experience.

Austin Wilson:

It’s a novel experience. I love it, Josh. I love it. That’s a good one. Let’s get back to Facebook. Meta.

Josh Robb:

Meta.

 

[11:45] – Competitive Advantages of Meta Platforms 

Austin Wilson:

All the above. I still sometimes call it Facebook. We’re going to talk about some competitive advantages for Meta as they stand.

Josh Robb:

Yup.

Austin Wilson:

So, one of them is network effects because they have a huge user base. Three billion people, and we’re going to get to some actual numbers on that, but tons of people and the intangible assets around, really data about those people, which is just a huge collection from users having shared different data points from various sites, different apps…

Josh Robb:

Oh, yeah. They know so much about everybody.

Austin Wilson:

They know everything. People don’t like to think about this, but they know what you click on and how much time you spend on even an image, or whatever, or on their site obviously. But also, between different things like a browser and Facebook, a lot of times they have those links between the two of those. So, there are certain ways that they can see what you’re doing on browsing and then target ads based on what you’re browsing, back to Facebook. It’s amazing.

Josh Robb:

Because it’s a lot say “would you like to use your Facebook login…”

Austin Wilson:

Oh, yeah.

Josh Robb:

“For this?” well, you got to know they’re sharing that data, then.

Austin Wilson:

If you do that, you have to know you have no privacy. So Facebook is also slowly becoming an entertainment hub…

Josh Robb:

Mm-hmm.

Austin Wilson:

Which is helping to increase engagement and user time spent on Facebook. So, one of the things is Reels, right? Facebook Reels or Stories, same sort of thing.

Josh Robb:

For Reels.

Austin Wilson:

They’re trying to capture a lot of the audience from TikTok.

Josh Robb:

Ah, yeah.

Austin Wilson:

TikTok is huge. It’s been growing.

Josh Robb:

Is it similar, what they do?

Austin Wilson:

Yeah, a lot of very similar, little short videos and stuff like that. And the algorithm on TikTok is very famous for being very good about… If you watch a lot of meat smoking videos…

Josh Robb:

I watch a dad joke; I get another dad joke.

Austin Wilson:

That’s right. Or meat smoking videos. I was on the food TikTok, and it just gets… That’s a deep hole. There’s a lot of food on TikTok.

Josh Robb:

A lot of cooking.

Austin Wilson:

So anyway, they’re trying to do that with the Reels specifically. So additional apps created by developers on the Meta Platform also help maintain users within the ecosystem. So that’s the same apps, similar feel, all tied together using same login. A lot of times some of those are even made by Facebook themselves. Here’s an interesting statistic.

Josh Robb:

Okay?

Austin Wilson:

According to eMarketer, on average users are on Facebook and Instagram making, buying 65 minutes per day, posting videos and photos, exchanging messages, making comments, content and all that stuff.

Josh Robb:

I feel like that’s actually low.

Austin Wilson:

65 minutes a day.

Josh Robb:

That’s an hour. Just over an hour.

Austin Wilson:

That sounds crazy.

Josh Robb:

I know. I feel like that’s low though. I mean, you watch kids?

Austin Wilson:

Do you know what an old-school advertiser would’ve killed for 65 minutes of engaged content?

Josh Robb:

Oh, my goodness. They would take 10 minutes.

Austin Wilson:

They would take six. Like a 10th of that, and this is gold. That’s why the company was so favorably viewed by Wall Street specifically, because of the engagement. It’s addictive, right? Social media it’s addictive. So outside of network effects, which we talked about, they have developed intangible assets. So, unlike any other online platform in the world, Facebook has accumulated data from about everyone with a Facebook or Instagram login. Facebook has their demographic information. It knows what they like and dislike. It knows what topics or events they’re interested in.

And again, like I said, they can kind of see what you’re doing on other areas of the web and target things towards you. They also have access, because of an agreement that you made to most of your, if not all of your photos and videos, on your phone…

Josh Robb:

Mmm.

Austin Wilson:

Because you can’t upload them unless you give them access. And you can limit the access, but most people don’t because it’s so much easier not to. That’s crazy. So, I’m sure they’ve got AI going through all that stuff. You shouldn’t have anything to hide to begin with.

Josh Robb:

No.

Austin Wilson:

But you definitely need to know that there is no secrets.

Josh Robb:

Yup.

Austin Wilson:

And these are the only way… They have this valuable data. They can monetize it and target you. And that’s why advertising online works the way it does.

Josh Robb:

You always feel like even when I’m verbally talking about things, then I see those advertisements form show up.

Austin Wilson:

I don’t think that’s true, but people say it is.

Josh Robb:

I don’t think it’s true. And it’s probably just because I Google-searched the same thing I was talking about and then it shows up everywhere else. But I just feel like sometimes you’re like, I only was talking to somebody about that and look what’s showing up.

Austin Wilson:

My understanding.

Josh Robb:

Your understanding…

Austin Wilson:

And I’ve been pushed back on this.

Josh Robb:

Yes.

Austin Wilson:

Your phone does not record what you are saying, and then Facebook or whatever, or Instagram have access to that, so that it can target ads. Their algorithms are purely that good based on other things you’ve liked, seen, scrolled to, surfed, so that it can target that without doing that.

Josh Robb:

Okay.

Austin Wilson:

That’s my understanding. I’ve been pushed back because people say it’s too eerie how good it is.

Josh Robb:

I don’t know…

Austin Wilson:

I don’t think they can do that. Apple and Facebook are not friends.

Josh Robb:

They’re not.

Austin Wilson:

No. Apple has notably made it very tricky for Facebook to do what they needed to do, in terms of advertising and tracking. That would be a big disconnect because it would have to use the Apple hardware or the Android hardware. Android’s a whole different Wild West ballgame, but Apple hardware…

Josh Robb:

Well, yeah. There are verified and unverified…

Austin Wilson:

Apps.

Josh Robb:

And you got to be very careful.

Austin Wilson:

Right, right. But specifically, whatever your phone manufacturer is, your phone manufacturer does not want to be the company known as giving your recording to Facebook.

Josh Robb:

Gotcha.

Austin Wilson:

So that’s my understanding.

Josh Robb:

Sounds good.

 

[16:16] – Fundamentals of Meta: Revenue, Debt, & More 

Austin Wilson:

All right. Got to do it. I’m a numbers guy. Fundamentals.

Josh Robb:

All right.

Austin Wilson:

Revenue has grown at a 41% compound annual growth rate. Yes, that’s a big number. Over the past decade to 118 billion…

Josh Robb:

Well, they were probably at negative for a while, so yeah, you can grow…

Austin Wilson:

Can’t have negative revenue?

Josh Robb:

They always do. They’re like losing money.

Austin Wilson:

That’s profit, not revenue.

Josh Robb:

Yeah, revenues going out that way. They’re giving money away. Buying users.

Austin Wilson:

Oh, 41% revenue CAGR over the past decade, 118 billion in 2021; operating income, 31% CAGR over the past decade, to 47 billion in 2021. Earnings have grown at a 44% compound annual growth rate over the past 9 years because 10 years ago, they actually had a loss.

Josh Robb:

Mmm.

Austin Wilson:

Yes, to $13.77 per share, split-adjusted, in 2021. The company does not and has no plans for a dividend anytime in the future. They’re taking any profits and throwing them in the Metaverse right now.

Josh Robb:

Yeah, throwing them into the trash is what they’re doing.

Austin Wilson:

So there’s no plan on a dividend at all, even though they had the cash flow to have a great dividend forever, they didn’t want to.

Josh Robb:

Yeah.

Austin Wilson:

Cash. Speaking of cash. It has increased at a 27% compound annual growth rate over the past 10 years to 16.6 billion, and that’s been coming down sharply this year, the past three quarters…

Josh Robb:

That always reminds me of, you see those things online, they’re like, 16.6 billion in cash? They could give every person on the planet 2 billion and still have some leftover. That doesn’t work out that way, but sure.

Austin Wilson:

Yeah, exactly. Long-term debt, 13 billion at the end of ’21. Capital expenditures, investments, thinking the long term investments, increased at 41% compound annual growth rate over the past decade to 18.5 billion at the end of 2021, and that’s only increased further in the last three quarters, really amping up the spend on the Metaverse again. Free cash flow, 45% compound annual growth rate of the past 10 years to 39 billion at the end of 2021. Diluted shares outstanding increased at a 7% CAGR over the past 10 years, but they really have been consistent for the past five years or so.

The company has not been aggressive like Apple. We had already looked at Apple. Apple was notably very aggressive buying back stock over the past 10 years or so. Facebook’s not been that way. In fact, early on in the decade, they were increasing a lot of shares really for stock options and stuff, as the company was growing. But the shares have leveled off over the last five years or so. When you look at credit ratings, the company obviously can issue debt and stuff like that as well. They have AA minus credit rating from Standard & Poor’s with a stable outlook. They’re ranked A1 with a stable outlook from Moody’s. Neither underwriter, I guess, is saying there’s a bunch of risk out there for any debt they would issue because they have good earnings. Now, who knows if that’ll get rerated at the end of this year. Now, monthly active users: 2.96 billion. Daily active users: 1.98 billion.

Josh Robb:

You got a billion of those that just check in once in a while here, huh?

Austin Wilson:

Yep, yep. The CEO is Mark Zuckerberg. He’s 37 years old.

Josh Robb:

Young’un.

Austin Wilson:

He’s a young’un. He’s the founder and has served as CEO and on the board of the directors since 2004, before it even went public. Mark Zuckerberg has served as chairman of the board since 2012, when the company went public. He attended Harvard where he studied Computer Science. Makes sense, right? He built an app. The company believes that Zuckerberg should serve as a member of the board of directors due to his perspective and experience he brings as the founder, chairman and CEO. He’s also the largest and controlling stockholder. He has ownership level and voting share rights, I’m not going to get into the details, but he actually has a ton of voting power in terms of…

Josh Robb:

Yes.

Austin Wilson:

The share that he owns.

Josh Robb:

Okay.

Austin Wilson:

And because Josh was asking for it.

Josh Robb:

Yes, I’m ready.

 

[20:33] – Meta’s Quest into the Metaverse 

Austin Wilson:

We’re going to talk about the Metaverse. That’s the Reality Labs part of the business. It’s only 2% of revenue, it’s very small. So in its quest to make the Metaverse the next big thing, Meta unveiled recently an all-new, all-in-one VR headset, later in 2022, which is building on the Oculus technology for a very sophisticated VR experience. It has some really cool features like eye tracking, natural facial expressions. It’s a really high-end device. It’s like $1,500.

Josh Robb:

Whoa.

Austin Wilson:

Now…

Josh Robb:

It’s a lot.

Austin Wilson:

You still have to be willing to wear a goofy-looking thing on your face.

Josh Robb:

I just don’t know if this technology has the legs to continue.

Austin Wilson:

Well…

Josh Robb:

That’s my joke because the avatars right now…

Austin Wilson:

Don’t have any legs.

Josh Robb:

Are missing the bottom half of their body.

Austin Wilson:

That’s a good joke, Josh.

Josh Robb:

I was waiting the whole time for that one.

Austin Wilson:

Here is a quote.

Josh Robb:

All right.

Austin Wilson:

“We believe VR devices will help usher in the next computing platform, becoming as ubiquitous as laptops and tablets are today, and that people will use them in their everyday lives to access the Metaverse,” the company wrote in its announcement of the $1,499 Meta Quests Pro headset. And while Meta has already invested billions in Mark Zuckerberg’s vision of the Metaverse, so far it remains just that. Really, a vision that has yet to come to life. So according to estimates from Statista’s advertising and media outlook, users of AR and VR, so AR being augmented reality, so you can see like normal, but you’re wearing glasses or something that can augment overlays to what you’re actually doing. That’s AR. And then VR is totally immersive. Users of both of those are still few and far between, with projections until 2027, nowhere near the scale that would make mixed reality the next computing platform as of now.

Josh Robb:

Yeah.

Austin Wilson:

Now Statista estimates that 74 million, with an M, will be using VR hardware this year. With AR just short of 10 million. By 2027, both AR and VR are expected to surpass 100 million users worldwide, but that’s still way short of the billions of smartphone users, and…

Josh Robb:

Yeah, I’ll tell you this.

Austin Wilson:

Yeah.

Josh Robb:

Before you move on from that.

Austin Wilson:

Oh no, go for it.

Josh Robb:

Between those two, I actually think the augmented reality makes a lot more sense.

Austin Wilson:

Agreed.

Josh Robb:

Because you still have your natural physical surroundings that you can see. Then you can add to it, enhancements. So for instance, you and I are sitting here recording a podcast. We have our iPads with our show notes on here. What if we had glasses where we could see the show notes, right there while we’re talking?

Austin Wilson:

Imagine the teleprompt options…

Josh Robb:

And then, if you’re having a group meeting, couple are virtual, couple are in person, you could see them all together without having to all be in this Virtual.

Austin Wilson:

Right?

Josh Robb:

You could see the physical people there through your glasses or whatever. I just think there’s a lot more experience. You could walk around and not run into things. Have you ever seen those videos online?

Austin Wilson:

Oh yeah, I know.

Josh Robb:

Of people crashing into stuff with their headsets on, but if I was to spend money, couple billion dollars in capital expenditures, AR would be where I’d go.

Austin Wilson:

Yeah. And something in the video when they announced all this was kind of cool. There was a guy sitting at his desk wearing glasses, not like the goggles, but just glasses, and they’re working on thinner glasses and he would have a whole wall of artificial screens for his computer above his desk.

Josh Robb:

That’s what I’m saying. You don’t need monitors.

Austin Wilson:

But you reach down and you can get your cup of coffee.

Josh Robb:

And drink it.

Austin Wilson:

And not spill it all over the place.

Josh Robb:

Yeah.

Austin Wilson:

I think that’s kind of cool.

Josh Robb:

Definitely.

Austin Wilson:

In the first nine months of 2022.

Josh Robb:

Yes.

Austin Wilson:

The company’s Metaverse lost 9.4 billion.

Josh Robb:

They better look hard for that.

Austin Wilson:

They already lost 10 billion in 2021. This had a drag on overall company fundamentals. The company’s operating margin was cut in half over the past two years because of all this spending…

Josh Robb:

Mm-hmm.

Austin Wilson:

Which is really weighing on short term results. Ironically, Wall Street are like, Guys, cut down on this.

Josh Robb:

Spending a lot.

Austin Wilson:

You have a great business that makes a lot of money, advertising. Let’s not blow it all. And Zuckerberg essentially was like, “I know you’re saying that. I really do. Thank you.”

Josh Robb:

I hear it.

Austin Wilson:

And he said, “No, thank you.”

Josh Robb:

Nope.

Austin Wilson:

He said, “I’m going to do it my way.” Zuckerberg is still digging in his heels and investors are really, really skeptical on it.

Josh Robb:

Wow. Okay.

Austin Wilson:

Pretty fascinating.

Josh Robb:

Yeah.

 

[24:42] – Should You Invest in Meta? 

Austin Wilson:

So the question that you might ask me with your Compliance Officer hat on is, what?

Josh Robb:

Should people own this, is your question that you always ask.

Austin Wilson:

That’s my question.

Josh Robb:

But my thing is: one, you got to think about your situation.

Austin Wilson:

Yep, right.

Josh Robb:

Always, always, always: Does this fit in what my goals and objectives are? Do I have the risk tolerance for it? And we’ve talked about this, and this is going to be true for a lot of the large companies. If we highlight and continue to highlight these type of companies, chances are they’re already in your portfolio if you have exposure to the US stock market.

Austin Wilson:

Yes.

Josh Robb:

Because again, when it’s a large company from a market cap size, most funds, whether they’re passive index funds or actively traded, you’ll see some exposure to this type of company.

Austin Wilson:

Yep.

Josh Robb:

And this is not a recommendation, but for most people who have a diversified portfolio, it’s probably somewhere in there already hanging out.

Austin Wilson:

Absolutely. Before you take a long or short position on Meta Platforms, because that is possible.

Josh Robb:

Yeah.

Austin Wilson:

Talk to your advisor about your financial situation. And this is always an opportunity that if you have questions, feel free to shoot us an email. And if you actually are looking for some help in determining what’s great investments for you, go ahead and check out the INVEST WITH US tab on our website. We’d be happy to talk to you about any specific questions about your situation that you may have. But in a nutshell, Josh, that’s Meta Platforms, Facebook.

Josh Robb:

Yes, good to know.

Austin Wilson:

It’s an interesting company, I think, from a fundamental perspective, prior to now. Through the end of 2021, I think the company had really a lot going for it. And pushback from Wall Street on Zuckerberg’s vision is duly noted in the stock price as the company is down sharply.

Josh Robb:

Mm-hmm.

Austin Wilson:

That being said, from a valuation perspective, again, not a recommendation, but the company has been sold off immensely so that it really trades at levels in terms of profit for what you get, for what you price, much cheaper than it’s really been in a long, long, long, long, long time.

Josh Robb:

Okay.

Austin Wilson:

Very interesting. So something to think about, but thank you for being here. Thank you for listening. If you had someone asking about Facebook or Meta in general, share this episode with them, and again, we’d love it if you would subscribe and leave us a review on Apple Podcast or Spotify. Till next week.

Josh Robb:

Talk to you later.

Austin Wilson:

Bye.

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Josh, Rob and Austin Wilson Work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin or any podcast guest are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions, or forecast provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for loss of principle. There is no assurance that any investment plan or strategy will be successful.