Why META?

Another disappointed quarterly report. EPS missed estimate by 11.32%, net income and profit margin all down by 30+% from YoY. Without doubt, this is not a good time for META. In fact, not a good time for all tech firm.

Since beginning of the year, NASDAQ 100 index had down 30+%, FANG index which include major tech firm (as meta the representation of letter F) had down 40+%. Clearly the era of high flying tech stock has come to an end.

Some factors are obvious. Fed had increase Federal Target Fund rate dramatically, quantitative tightening is in place, simply, there is not enough cash on the market. Growth section got hurt the most because most company’s stock price is based on potential, not company’s fundamental, which in another word “bubble”.

Tech giants are no different. Although in the past decade their business model works, plus under current accounting standard, tangible assets are really hard get a correct value. The result, every single quarterly report beat the estimate. Makes people tends to believe the further of these companies are unlimited.

But music has to stop. Fed can print as much cash as they want, but human can’t make a baby in a blink of an eye. The problem for this growth model is that the number of consu[mers](https://www.zhihu.com/search?q=mers&search_source=Entity&hybrid_search_source=Entity&hybrid_search_extra=%7B%22sourceType%22%3A%22answer%22%2C%22sourceId%22%3A2733417712%7D) is a finite number, roughly 7billion at this point in case you don’t know. After 20 ish years of crazy growth, each tech giant are approaching that limit.

The believe of unlimited growth is reaching to its end, in just 20 years. Some, like META has smaller cap number than others. As a SNS company, its max customer base is equal to people who use internet. So for META it is not 7B, it’s actually 60% of world population about 4.2B. Right now, META’s DAU is about 3B. Given that META is not available for all countries, it’s actual potential customer cap is about 3\~3.5B.

With a predictable growth, the company’s future is also predictable. Given that per customer profit is a steady number, people can easily guess how much money could META make in a time period. Plot those numbers in DCF model, you get a price on the end year. Since there is no surprises, there is no huge growth, thus, the price of the stock, is representing its true value, the future cash flow of the company.

But that is not the only problem META has, there is another threats, the competitor. Just like Nokia, the biggest mobile phone make during the 2000s, was not beaten by its opponent like Motorola, but an un-relative company, Apple. META has its own, ticktock, algorithm based content delivery network to be precise. The fundamental of SNS is to kill time, rarely it generate any value to its consumer. As long as people stick to your platform, you can feed in whatever you want to feed them. Most people without doubt, will take it.

This is an ideal places for ADs. The biggest problem for AD content is that you don’t know who is your target audience. Traditional news papers, TVs, or radios don’t have the granularity differentiate what does the audience like. In my point of view. Google and META had all worked on to solve one problem, how to let people wants to buy something know my product. The different is, while feed you with ADs, google is also providing you useful tools as the compensation use your personal data.

META however using a different approach. The longer you use the platform, more behavioral data will be generated to them, more precise ADs will deliver to you. And in return of use your privacy data, they feed you with more shit.

This works really well because people always need to pleasure themselves, and things generates dopamine are most welcome. So when a new platform which could generate more dopamine, and even more easier to use (you literally just has to swipe) had came out, people just gona to rush into it. The so called wide economy moat is gone fast.

This change the pricing logic for META. without customer data, it is worthless. Just like how people no longer read magazine. Another thing that accelerate this downfall, is Apple change privacy agreement. some easy to get data now META has to ask user permission, and for most people, the answer is fuck off.

The question right now is that given all kind of bearish factor, how much should META worth? For start, all the crazy gains during the pandemic should be no more, it just makes no sense. Secondly, META should be pricing as value stock, not a growth stock, it has no upward anymore. People may ask Metaverse Or Oculus, I just want to say, a product cost more than 400 bucks is either use too much tech or in a wrong direction. Just give me a break.

If you hold long enough, this should be somewhere at $100. I don’t think the consumer base will lost that fast just as it not growing that fast. And that price range is conditioned on profit margin back to normal, however, the reality lab cost so much start letting investors lost hope with no idea when a major break-thought will be released.

In short, run, as fast as can.

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