In her Washington Post column Megan McArdle remarks on the decline in the value of Meta’s stock, the largest one day decline in the value of a stock in history:
In 2012, Mark Zuckerberg decided to take the company all in on a mobile-first strategy. This was disruptive, at first, but in time, he would be seen as a visionary prophet leading his company to the promised land.
The problem is, that land wasn’t owned by him. Zuckerberg had shifted his company away from the open platform of the browser and onto a closed system where Apple set the terms. For a long time, that was a very good deal for Facebook — but when Apple decided to alter the deal, Facebook didn’t really have much recourse.
There’s a lesson in that, even if you aren’t planning to launch a media site, or a social media platform. Our ferocious arguments about who should be kicked off Spotify, or Twitter, are fundamentally about the same problem: So much of our public life takes place on a handful of technology platforms, where what we see and whom we reach is determined by policies set by some faceless programmer in Silicon Valley. We are all of us tenants of the digital manor — even, it turns out, some of the lords.
I have never understood Facebook’s sky-high valuation for the simple reason that I didn’t believe that its prospective revenue could ever match the expectations. I do think that Facebook (and Google) should be broken up because a) they wield too much political power; and b) they have been using their de facto monopolies to expand their monopolies into other other areas.
I don’t have a great deal to add to Ms. McArdle’s observations but I do have some questions:
- Will Meta’s stock recover? Or will it decline to its 2012 levels? That would be a decline of 90% from peak.
- Will Meta bring other tech stocks down with it?
- Is this the beginning of the end of the bull market?
Would be great if Nemesis would give the usual reward for Hubris to Silicon Valley and Wall Street, However, everything rolls down hill and us valley dwellers need to get braced for it.
â€We are all of us tenants of the digital manor — even, it turns out, some of the lords.â€
Beautifully phrased!
Heh. My world is so oriented towards bread and butter private (manufacturing) companies that I didn’t even know who Meta is. And I don’t really care.
One thing did catch my eye. Apparently they did a $20B share buyback back in Q3/4 of 2021. At an elevated price. I generally scoff at the usual critics of stock buybacks who don’t have a clue what they are talking about. However, this is a case that fits the criticism. If they had good places to make investments they should have. If they didn’t, or don’t, what should they have done? Pay a dividend so all shareholders would benefit, no matter the prospects for the stock. Buy back stock at a 33% premium to today, and consider the delta the tax that would have been paid? Things to think about.
Since I don’t know what Meta does, far be it from me to predict other tech stocks moving in sympathy. But if Caterpillar stock declines, should Boeing stock decline?
End of the bull market? Can’t imagine Meta drives the market. The Fed has so much more to say about what will happen to the bull market. Personally, I’m dramatically underweighted in public equities. Very short duration and TIPS oriented in fixed income. And overweighted in PE. Give me an investment in a company whose EBITDA I can influence anyday.
“Zuckerberg had shifted his company away from the open platform of the browser and onto a closed system where Apple set the terms. For a long time, that was a very good deal for Facebook — but when Apple decided to alter the deal, Facebook didn’t really have much recourse.”
Just as Miguel Felix Gallardo desired to control distribution in the cocaine business by turning the Medellin and Cali cartels into mere farmers.
Meta has a lot going for it still. It generates an immense amount of cash (most revenue per employee); Zuckerberg is the founder, is involved and has a controlling share — so he has the clout and power to force necessary changes for survival.
As for whether Meta is a sign; it’s not the one I would pick. I look to Amazon as to the health of the tech industry, the stock market and the economy. As a reminder; Amazon employees 1.6 million employees; added 400,000 net employees in 2021; and had 500 billion dollars in sales. Wall Street liked their latest earnings but underneath I wonder. The things analyst liked (17% price increase in Prime, big increase in ad revenue — notice how many ads you encounter when shopping there) aren’t things that portend well in the long term.