Summary
Facebook’s userbase has finally stopped growing.
Despite having 2B active daily users, Facebook remains fragile, as did AOL at its peak.
Meta is putting too much focus on the yet unproven metaverse, which could cannibalize Facebook in multiple ways.
A spin-off would solve this problem, but that’s unlikely to happen anytime soon. Instead, investors should see FB as a ticker with two very different companies trading on it.
This idea was discussed in more depth with members of my private investing community, Timing the Market. Learn More »
Prostock-Studio/iStock via Getty Images Despite the trade idea it contained having worked out exactly as stated, my last article, “Peak Facebook” garnered much criticism from Meta (NASDAQ: FB ) bulls. In this article, I would like to expand on my bearish thesis and address some common criticism. In addition, I want to emphasize the idea that Meta and Facebook are diverging to the point where an investment in FB is essentially an investment in a decaying value company (Facebook) and a speculative growth company (Meta). Recap: Mid-Life Crisis
When I used the term “peak Facebook” in my previous article, I wasn’t saying that Facebook is dead – rather the opposite: Facebook is at its peak. Of course, the implication is that it’s downhill from here, which I was intentionally implying.
These two things occurred almost simultaneously and mark Facebook’s mid-life peak (I’ll elaborate on that term in a minute): Facebook changed its name to “Meta”
Facebook saw its users drop for the first time ever
The latter is a quantitative fact that points to Facebook’s adoption being “as-good-as-it-gets.” The former is qualitative but equally important as the hard numbers: Even the CEO, who is coincidentally approaching middle-age himself, is trying to change the company’s image. While I’m certainly being tongue-in-cheek about this analogy, big changes really do seem to coincide with mid-life crises. Consider Zuckerberg’s new policy of calling his employees “Metamates” and his trend-chasing with Reels as a response to the popularity of TikTok. The point is that even its founder knows that Facebook has reached its potential, and now it is time for the company to step away from its reliance on this single platform.
If anything, the name change is bullish for Meta, the company. Yet it is still bearish for Facebook, the company’s primary source of revenue. The name change represents a fundamental change in FB as a stock: Facebook is no longer a growth asset but a value asset; Meta’s endeavors represent potential future growth. Investing In FB Is Now Speculating
Here is our first criticism to address: “Facebook isn’t the only thing Meta does.” This statement, while true, hides an important idea: If you are investing in FB for growth, you are speculating on non-Facebook endeavors, as Facebook’s growth has at least slowed considerably, if not peaked. More specifically, you are banking on the metaverse. Even more specifically, you’re banking on Meta’s version of the metaverse versus its many potential competitors, such as Roblox ( RBLX ).
An investment in FB at this point is then speculation. No metaverse model has yet proved to be profitable. The metaverse concept has yet to be implemented to where we can see how unique selling propositions differ among the major players.
Even if you assume that the metaverse will be the next hot thing, investing via FB is likely a poor idea just based on the audience. The metaverse idea is most likely to appeal to a younger audience. Meta’s audience tends to be older. In my opinion, Meta will find it difficult to leverage this older demographic.
To put it another way, consider Meta’s metaverse as an already established platform but a company separate from FB. Would it make sense for FB and this hypothetical metaverse company to merge? I think news of the merger would be met with confusion: The audience doesn’t match the product. It would be akin to Microsoft ( MSFT ) acquiring TikTok to leverage its cloud enterprise business instead of LinkedIn (which was a perfect audience-to-platform match, in my opinion).
I am not saying that Meta’s metaverse will not be successful, but I am saying that if you are long FB for this reason, you really need to have a good reason as to why Meta is more likely to pull off the metaverse idea as compared to other candidates. Meta lacks the background. It lacks the audience.
To me, the only reason to hold FB long is the Facebook platform. However, at present, Meta is diverting […]
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