r/stocks
Change my mind:Zuckerberg could spend $100b on hookers or data centers, it doesn't matter, Meta will still be a $3 trillion business in 2030
Author argues Meta's strong ad pricing power makes massive AI capex low-risk, highlighting its cheap 17.3x P/E and 33% revenue growth.
- Dominant user attention and pricing power allow continuous ad price hikes.
- Attractive valuation at 17.3x forward P/E with 33% YoY revenue growth.
- Highly profitable core business makes massive AI capex a low-risk option.
The year is 2021 and Zuckerberg bets the whole company on us all living in a weird pixelated metaverse. Even renames the company. Ends up spending billions and billions and tanking the stock from nearly $400 to $100.
Turns out it didn't matter shit. Just like spending $100b on data centers and reassigning thousands of high paid tech employees to training AI won't impact the main business. He's got everyone's precious attention for hours every day. We are addicted. That's a huge leverage. He's got an extreme pricing lever / pricing power. He can meaningfully hike up ad prices every year and businesses still have to pay him to get people's attention.
What do you get if you buy META right now?:
- Extremely cheap at 17.3x forward P/E
- Insane 33% revenue growth year-on-year
- Extremely profitable / high margin business
- Market leader
- great core business and a questionable AI bet that they might shut down later
- there has been some talk about creating a Meta Cloud business to leverage the data centers into revenue/profit just as GOOG and AMZN does
What am I missing?
The AI spend is a waste of money. If AI was to be of any use at all, it would be for analyzing the actions of the plebs who use Facebook to refine the targeting of the advertising. There's zero requirement to build his own chatbot for people. It's be orders of magnitude cheaper to just licence someone else's. He knows that but if he doesn't stay in the race with all the koolkids then his stock will sell off. That suggests to me that there's a big disconnect between what Meta does for the money and what people think it does. And soo... I suspect that the efficacy of his advertising model is not nearly as good as claimed but advertisers can't take the chance so they pay up anyway.
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That's called hyperinflation.
Well is everyone going to stop using Instagram in 3.5 years? Is that all just going to go away? There’s your answer.
No it's not going away. But that's not an answer. The sp500 has outperformed Microsoft, Amazon and meta in the last 5 years. Even Google till last year and Apple has a high pe. With individual stocks timing matters. If you bought meta at 100 yes you are doing great but if you bought last year at 750 no even 1000 next year it's not great returns
That’s not an answer to the question of whether meta will beat the s&p lol
I was expecting people on the comments to make the math on how many hookers would you need to spend $100b in the forward 12 months
“He’s got everyone’s precious attention for hours every day.”
I didn’t realise he owns Reddit.
META also has elections. They can basically control who gets elected in the Philippines for example.
True, the value of the psyops that can be performed is incredible
And their ads are only as good as the presence of actual people on their platforms...
Once the bot:person ratio goes over a certain number ads will become pretty useless. If anyone comes up with a good open source alternative and we all switch back to forums and personal blogs like in the 2000s, with extra checks against AI/bots. Meta is basically done for, and will need to resort to some extreme measures to stay afloat.
Already more people are switching to signal instead of WhatsApp, facebook is basically dead, Instagram is a circle jerk of bots.. People are just waiting for alternatives, tiktok took over in a blink of an eye if it wasn't for all those regulatory actions by the gov.
and so is the PE low compared to others
IMO, fine if it's part of your allocation to tech but the issue I have is that there are people who just "collect 'em all with mega cap tech and don't focus at all on the companies where mega cap tech is spending a bajillion dollars and the latter has been the far better place to be for the the last 2-2.5 years.
Zuckerberg also said he didn't rule out a Meta cloud business but for now internal demand exceeds supply.
Yeah good luck with that. I doubt they can catch up to the big three in cloud computing. Plus a host of other players. All that spend to sell more ads? Not great.