Ben Thompson, Stratechery:
Meta, née Facebook, is now, incredibly enough, worth 42% less than it was when I wrote Facebook Lenses, hitting levels not seen since January 2016. It seems the company’s many critics are finally right: Facebook is dying, for real this time.
The problem is that the evidence just doesn’t support this point of view. Forget five lenses: there are five myths about Meta’s business that I suspect are driving this extreme reaction; all of them have a grain of truth, so they feel correct, but the truth is, if not 100% good news, much better than most of those dancing on the company’s apparent grave seem to realize.
The myths Thompson seeks to bust, backed by Meta’s most recent earnings report (PDF), are that Facebook is increasingly a ghost town, Instagram’s focus on Reels is failing, TikTok is wiping the floor of Instagram in the U.S., Meta’s ad market has died out, and its high expenses are terrible news. Thompson presents compelling counterarguments to the prevailing narrative of a giant withering in its age as it struggles to invent a whole new kind of computing.
The latter point is perhaps the most interesting to me — and, it seems, Meta, as it made Instagram head Adam Mosseri available for a Bloomberg interview after its earnings call, in part to defend why the company’s spending is so high. It also suggests Meta’s ad targeting ability could rebound with machine learning models trained on the network at large instead of third-party data. In other words, a mix of new privacy legislation and App Tracking Transparency could have spurred Meta into building a better ad targeting engine with potentially fewer privacy concerns. Sometimes, it takes that kind of kick in the pants. It is a good retort to articles like one from the Economist questioning why huge capital expenditures are necessary or wise.
Still, I find myself wondering whether the increasingly interchangeable social media landscape is running into the practical limits of available time. Thompson includes a chart showing total time spent in TikTok in the U.S. staying more-or-less consistent for about the past year. That is broadly consistent with other estimates indicating time spent on each platform has basically levelled off. A report (PDF) published earlier this year by GWI suggests much the same: the pie has stayed the same size for years.
Update, November 12: As I was re-reading Thompson’s article for other reasons, I found a curious inconsistency. Here he is writing about the impact of App Tracking Transparency:
This was, needless to say, a big deal for the entire industry, but what has been fascinating to observe over the last nine months is how few companies want to talk about it (particularly Google in the context of YouTube). Meta’s stock slide, though, shows why: ATT was a secular, structural change in the digital ad market, that absolutely should have a big impact on an affected company’s stock price. Meta, to their credit, admitted that ATT would reduce their revenue by $10 billion a year, and because that impact is primarily felt through lower prices, that is money straight off of the bottom line — and it’s a loss that will only accumulate over time, by extension reducing the terminal value of the company. Again, the stock should be down!
So ATT is responsible for a potential annual revenue hit of $10 billion, a number that will likely grow, and that is a good reason for Meta’s stock to be down considerably. Alright. What about this virtual reality stuff?
It’s worth pointing out, though, that the Metaverse’s costs, which will exceed $10 billion this year and be even more next year, are, relative to Meta’s overall business and overall spending, fairly small. It’s definitely legitimate to decrease your valuation of Meta’s business if you think this investment will never contribute to the bottom line — that’s a lot of foregone profit — but this idea that Meta’s business is doomed and that the Metaverse is a Hail Mary flail to build something out of the ashes simply isn’t borne out by the numbers.
So a $10 billion and growing increase in spending on something not very compelling is peanuts, but an estimated $10 billion and growing hit to ad revenue is a big deal.