Mohnish Pabrai Calls Meta Platforms (FB: US) an “Easy Double”

well thank you everyone for for a little bit of patience here i know um this is this is far and away the largest uh private call we've we've you done over a thousand folks actually register register for this um so it seems like we struck a chord either with uh the stock or uh with mo niche so either way it's good um but anyway thank you all for joining um you know we're we're super excited to have this discussion and also to kind of introduce you guys to um um you know what we're doing at sumzero what sort of monish is up to and and to talk about meta um you know manish has been a huge supporter of some zero for a number of years it's always a privilege to chat with him um and you know i i think one of the things we wanted to do was to kind of um not only discuss discuss meta and facebook but but also um plug monitors charity dakshana which is foundation um and so you know what what we're going to do is for any of you who subscribe to some xero after this call we're going to send you guys a discount code where you not only get a 15 discount off of some zero but also um we're going to be donating 15 of um the proceeds to monitious foundation so monish do you want to just quickly um you know tell us about dakshana before we get into meta uh sure yeah so the the website is uh dakshana.org org that's uh d-a-k-s-h-a-n-a and uh very simply basically uh we uh we identify very poor but gifted kids who are 16 to 18 years old in india interested in engineering or or medical school and and then we uh basically prepare them for the very comparative selection test so there are a number of schools in india which are very top-end uh government schools where to go to them is nearly free but getting in is really hard and uh and usually there's a lot of coaching expense involved in trying to get in so we basically take that barrier away and in effect it's a poverty fighting tool election has been around for about uh uh now about 15 16 years and it's been going great way better than i ever thought it it would do so thank you uh thank you for the support davia i appreciate that but let's get to the business at hand uh what's doing so should i get going let's go for it okay so uh so you know when divya mentioned uh the concept of uh this kind of a call i was i was interested because uh specifically devya was was around uh at the birth of facebook in the in the orbit if you will uh along with the winker watch twins and i think most of you might have seen the movie the social network and of course the guy playing divya looks a little bit different than they were that's okay um so so and and so therefore you know i think your understanding of facebook because you know like like i said you in one way or another followed it uh for uh i would say 18 uh 18 or 19 years and uh so just quickly before we dive into mera and such is that uh what what would you say because hollywood always likes to embellish things and you know make things more screen friendly and so on when you look at your particular interactions at that time and your role how was that different from what we saw on screen funnily enough the guy who played me is um half english half chinese so that that part was completely completely wrong um you know my parents are from india some first generation uh american i guess uh and um you know they the guy who played me was like very serious i'm a little bit more relaxed i think than the characters and i look i think the movie played up social stereotypes so on the one hand you had like these two jocks who grew up in greenwich and were like kind of the the sort of waspy you know um kind of old money which by the way is completely not true because their father was you know self-made um and then you had um you know this this like jewish kid from dobbs ferry who is the computer geek who um you know i think was was portrayed as as uh you know just very much being the opposite of the boss twins i mean i think the movie kind of poked fun at both sides and um and then i they threw me in as like this like cashmere sweater wearing hacky pants wearing you know indian kid i don't know where i kind of fit in i guess i was a little bit of a um you know a catalyst for litigation in the movie which which is uh uh interesting because i'm i'm you know i'm a pretty like i'm not exactly confrontational so um you know i i like i think a lot of it is poetic and you know the big picture here is that uh you know there was there was um amongst this cadre of college kids you know a concept that clearly resonated and it's sort of taken off and you know i think some of the challenges that we faced back in 2003 which is when we met mark um it's you know the sort of things that a lot of entrepreneurs you know probably experience but never you never hear these stories because they're they're not never you know there is no litigation there's no media coverage it's not happening at scale so yeah it was it was an incredible journey i mean i don't want to relitigate um what happened 20 years ago but um suffice to just say it's a very unique experience i think um you know from a business experience standpoint it's pretty irreplaceable because we you know i think all of us myself the twins mark his partners um you know got to see something huge happen at a at a very young age when none of us had any real business experience um so i i can leave it at that but but you know i i do feel like i'm fairly close to the uh the social dynamics that govern these types of businesses not just because i was there you know when it started but um a lot of these concepts uh guide what we do at sum zero as well and are relevant i think for for um you know most consumers who are on these platforms whether it be you know one of the facebook apps or or youtube or um everything else that's out there so um yeah it was a very useful experience nothing happened as i expected it would um and i wish they had found an indian guy to play me maybe is the takeaway maybe maybe it would have been better if you just played yourself i'm no actor i i don't think that would have worked out well okay well let's uh let's uh fast forward to 2022. and uh we have a we have a meta market cap i checked this morning of 586 billion and then you know maybe if you take out like 50 odd billion of cash you get to like uh enterprise value like about 536 billion and then net income is is uh you know 40 to 45 billion type of run rate and then you know they're spending about 10 million on meta so if you if you add that back real debt income is like enough let's say 48 53 billion kind of number uh so it's basically it's basically like you know 10 11 times uh net income i i i prefer to use net income over ebitda and all that because uh my friend charlie has uh various four-letter words he use when people are talking about ebitda so we'll skip the we'll skip the usage of ebitda there but but basically 10 or 11 times one would have never thought we'd get to on trailing earnings uh get to that sort of valuation on a business uh like mera and uh but you know but on the other hand one of the things when you look at it i don't think there's any other company on the planet any of these other you know large texts that have 3.6 billion users i think the the next two combined might not get to 3.6 billion so facebook is uh mera is in a very unusual situation because 3.6 billion the total number of internet users is 4 billion so one question i had for you uh divia is that when you look at the users the total users that facebook has how is that going to grow or does that need to grow well i mean look i think you reach a point of penetration where it becomes sort of a population growth type of um uh opportunity but the the more important thing is engagement right so it's it's you know what are the 3.6 billion people doing when they're on the platform and so i think the ultimate monetization of the platform you know is is is much more linked to to that metric or metric associated with engagement than it is to the actual number interestingly one of the reasons why the the stock collapsed um was you know you started seeing um declines in in uh in playactives now the thing is they they report numerous uh you know they have all these different ways of measuring activity so they do you know there's there's the facebook daily active number there's the facebook monthly active numbers there's the family day daily active people number the family monthly active people number and all these um you know all these metrics i think reflect the fact that it's not just facebook anymore so i think part of what the market is caught up on is you know um facebook daily actives being down now just with this perspective it went from one point uh i think it went from like 1.929 billion um uh from 1.9 3 billion or something like that the the prior uh the prior quarter um and interestingly even within facebook which is their original kind of og legacy app monthly actives were actually up 2 million in fourth quarter versus third quarter of 2021. there is no question that that that usage of the platform is um is is is steady to increasing now now the rate that it's increasing might be declining but you know again we're talking about a platform with 3.6 billion users um the other thing that's interesting is that the ratio between daily actives to monthly actives has been steady quarter after quarter after quarter after quarter so this is not the kind of thing where you know some people like to categorize this as a you know oh it's like you know like you see some of these headlines tick tock eating facebook's lunch or you know it's a melting ice cube like it just isn't born out if you look at the actual data and i think from an engagement standpoint what's really interesting is this transition from um you know the majority of content being kind of individuals uh messaging or rather posting stuff to their activity feed to their friends to kind of more public content uh through you know people just kind of um these content creators posting content that's really meant for everyone and so uh there's a blurring of the lines i think between like what facebook used to be which is maybe more kind of um you know content shared between your friends and now a lot of that moving to kind of video content that's being shared more broadly and then much more content being shared on a one-on-one basis or on a group basis through messaging so like what used to be maybe kind of just social networking or at least as it was originally construed has now become you know very large messaging platform not only between individuals but between individuals and businesses and then also um i think feeding off this new kind of creator economy uh which is exactly what you see on youtube and tick tock that's becoming a significant uh sort of use case of the platform and on that subject i think it's worth taking a step back and this is kind of my observation you know have talked so much about tick tock and why tick-tock is a problem for facebook um short form video which is what tic toc specializes in these are kind of like dance videos singing that sort of thing there's something about it that clearly works and i think a lot of it has to do with we as a society are more add than we've ever been before there's like this insatiable i think appetite for content but the form of that content is um you know can come in different and come in different forms but but i think the short form format it's so popular because you know people can get sort of their 10 second fix or 30 second fix on a video and not have to spend you know or may not want to spend 10 minutes watching a longer video and i think i think facebook recognizes that and because they have multiple platforms that can display short form content like i think they actually have a really good chance of uh competing with with with tick tock even in this this niche that they've you know they've really built a brand around uh so we'll we'll get to tick tock in a second but first uh let me just kind of put some disclosures out there so divya's uh i think you've been a shareholder for more than 10 years correct correct right and you're currently a shareholder obviously and uh bullish i on the other hand have never uh sadly owned a single share of facebook ever or meta ever and uh and i'm not sure at the end of this call i'll be going out and placing by order so in some ways uh we we have uh two individuals who uh kind of see things a little bit differently which is good so the the one thing that that comes up with uh with facebook is so when i you know and i even though i don't own this talk obviously i use facebook but what i found extremely compelling about facebook i mean when i look at the shirt ember um this shirt came from an ad facebook server and and i have about 20 of them and it's the only shirt i wear and i mean i pretty much redid my uh i'm wearing shorts you can't see my shorts but i have only one one type of shorts which also came from facebook and these are brands that i would not have found so pretty much if you look at almost everything i'm wearing it actually originated so i think their ad platform uh is incredibly good at targeting uh i mean just literally i uh the kind of stuff i get served up is is amazing i mean literally like they can read my mind you know and i think we've seen that and some of that got hit with uh the apple privacy issues uh but it's been right on i think it's been just incredible though so i found facebook very useful from content been served up which was you know getting generating revenue for them but it was very relevant to me when i look at reels i do not find the ads relevant uh the real ads are like me watching you know uh broadcast television you know some beer ad being served up or whatever else and i don't drink beer i'm a tea total and uh and so i i find that they're targeting on the reels for whatever reason it might be that videos is kind of different you know kind of universe of what they can serve up uh but it seems to be quite a ways off uh from so i actually find when i look at reels it's irritating the ads are irritating and actually there's a i at least find the loading of the ads pretty high so that's a negative on tick tock side i don't think it's about the videos that they're serving up tick tocks and bike dancers claim to fame is the incredible ai engine they've got on the back end and what they are doing on their short form videos is what facebook is doing on their newsfeed they are right on in fact when i talk to friends of mine they feel tick can read their mind uh they feel like tick-tock and knows what they want and serve that up in that format so they seem to be uh they seem to be ahead my um my my situation when i look at facebook is that i see a company which is that revenue is not going anywhere uh their cash flows are not going anywhere i think those are pretty uh solid i think the user base is pretty solid so if i were to look at facebook i would say that even with five or ten percent annual growth which doesn't really seem like a big leap for them to get to uh the stock uh ought to be a double at current interest rates so i don't have any issue with saying that you know meta in two or three years is an easy double i think that's a that's a reasonable bet when we look beyond that you know if you're looking for something more than a 2x i i tend to be skeptical because i i the way my mind works everything related to meta is an option i'm not willing to pay for so whatever they're spending on meta and whatever they're claiming uh in my opinion i don't think facebook themselves understand what matter is i think they throw a lot of words around and i think we will as a society maybe in five or ten years uh have some semblance and one of the things about these leafs these technology leaves meta is a very big technology uh if you go to google glass right so google glass i thought was a revolutionary product a big leap forward a very strong technology and almost you know looked i mean i think it was so i think when you get to the ergonomics and what users are looking for if things are even slightly off they won't work and i think that was the case with google glass it was slightly off whereas something the iphone has been right on now the iphone itself i feel is extremely kludgy so if i'm walking around using google maps on an iphone and i'm looking at my phone and trying to see where i'm going that is a really bad interface the human factors for that is terrible so it's a great device to listen to music it's a great device to interact chat whole bunch of things but eventually the device will change i know it will change and we and mera is trying to go in that direction the problem is that i believe the revolution is going to come out of some guys in a garage i don't believe it will come out of inside facebook uh even oculus did not come out of inside facebook they bought it so mera i think is really good at acquisitions i think they did a remarkable job with uh instagram and with whatsapp and they also have incredible execution when they're narrowly focused on something that is a bread and butter so i think their execution on facebook is fantastic they're honed in when we look at reels whatever shortcomings are there are on reels i know they have a lot of resources focused on that they probably will fix those uh but mera is a big leap so the way i would look at it is that mera is a call option uh and that call option from an investor point of view should come for free and today it is coming for free so to me i think if if you're an investor looking for a double in two three years which is really like you know 25 to 35 annualized returns which is really good uh i think this is a decent bet with relatively low downside but if you're looking for this to be a 10 bagger or five bagger i would say then you're getting into speculative land so just wanted to understand your take on that uh look i think there are a handful of companies in the world that can be investing in what we're labeling metaverse but to kind of distill that um you know like you're really you're talking about facebook you're talking about apple you're talking about google microsoft so i don't actually think that um because the the hardware onboarding pro like you know it's not a dumb social app right like tick tock to me as well as they've done as a business it's just a twist on you know kind of traditional communications that we have like it's just another app like it's the flavor of the day i don't know if tick tock's gonna be around or be as successful as as it is today five years from now i would say the same thing for snap i would say the same thing for all a lot of these apps like their how and you know but but could like a twitter or could uh or any of these companies like do they have the firepower to develop the tech and we're talking about sound haptics um obviously the 3d kind of immersion immersive experience into a form factor that's small enough to be adopted by you know hundreds of millions of people or billions of people that's really hard and i think what people maybe under appreciate about meta as a business is that their whole mo is a billion or more people right and so that that applies to to what they're doing it applies to what they're doing with um with ray-ban stories the form factor was a huge problem for google glass like that's one of the main reasons it failed obviously the technology was where it was worse back then but when you think about what v2 v3 v4 of ar glasses is going t and when you think that these glasses are in a form factor that is already iconic right so you know when they partnered with ray-ban or luxottica um they they implanted all of this tech into the wayfarer which is the most iconic form factor of any sunglass in the history of sunglasses so you're not sacrificing aesthetics when you purchase that product now now they have a project called project nazare which is going to be kind of the next iteration of of ar glasses and you just kind of think through okay in a couple years like what that next version of that of that product is going to look like and then you think about like who's in a position to develop that like it's not that many people right i mean they spent over 10 billion dollars last year on all this all these hardware initiatives you know kind of lumping in vr ar everything in reality labs like how many companies are in a position to do that and still have you know 35 to 40 operating margins on a consolidated basis like not that many um so i think like if you're a technology investor you should want to invest in companies that have 10-year road maps or longer and um i frankly think this should be applauded now on the sort of uh the the traction that they're having well so so they've one approach investor could take is they could buy the stock they could uh hold it for two or three years right so one is your you get to see whether you get your double or not which is fine you you've got that and you also get to see what the execution is on everything else in the next two or three years so 100 so what i'm saying is you go three years out 2025 now your stock is sitting at 2x the price you bought it at and you can say okay what happened in the last three years in terms of traction or tangible uh you know advances that give me more comfort than when i okay let's do a look-see in three years where the 30 billion went into our 40 billion is going to matter now by that time what is coming out the other end that is tangible and it may not they may not be much by then either but at that point at least they can make a better decision on a go no-go right how how do you think about that what do you think so let's say what i'm asking you if you you own meta the prices doubled in three years and what would you be looking for uh from them on these new initiatives to give you more comfort what would you expect them to be where would you expect them i think the big point here is that you don't need to believe in the metaphors to own the stock because the core business is trading at such a huge discount to the market that you can own that at you know i mean as you said like we're talking about you know something approaching 10 times earnings like that's crazy um for an industry that has structural tailwinds behind it right like it's not like people are going to be spending less time on the internet less time consuming content um so anyway you have that but but going into kind of what to look for you know i would look for the velocity of kind of product releases and and and how those are tracking so they sold you know over 10 million quest twos in about a year since launch uh which was like late 2020. so from i think it was like october 2020 to kind of the holiday shopping season last year they sold over 10 million quest twos to put that in perspective um that was almost as many quest twos as playstation fives which is not a vr product at all and um the sony uh the product called playstation or psvr um it took them i think over three years to achieve the same level of success as as quest 2. that's just quest two now there's a new version of of quest coming out this year that's project cambria which you've come across um which is gonna be kind of a pro version um but there's then there's gonna be kind of the the quest three now keep in mind this is a 299 dollar product right so this is [Music] kind of the the wealthy uh kind of a product and i think it's priced for massive adoption the other interesting thing is that the the system that that built along with the hardware which is key right like you want to create a flywheel so in their case what that means is you make the best hardware you know products you can you have the best vr headset in the on the market which by all accounts it's it's already the best of its kind and then you have as many apps for it as possible and you you attract as many um app creators to come and build apps for that headset and then get better and the apps get better the software gets better it shins the flywheel so i think really what you're looking for you're oh tears now is like how is that flywheel spinning and what are the other um you know it's not just vr right like what are the ar initiatives that they're how are those tracking how is the software ecosystem developing around those um those items and also how is this stuff being incorporated into their 2d apps so facebook right so thinking about you know the release of things like avatars um and other sort of elements from uh you know the metaverse how are they being incorporated into all of their like existing apps that are that are used by everyone like it's not a one so thing where one day we wake up and we're in the metaverse like the metaverse is here today in it's sort of like it's the top of the first inning but if you're if you're into it and you down the horizons like you can experience today's version of the metaverse um and for some people like even today's version is actually quite interesting so here's an interesting anecdote i have a a brother-in-law actually he's not a technologist he's actually a quasi-luddite like he doesn't like he's not the early adopter he actually bought quest 2 because he's an architect and he's using that headset to visualize 3d spaces uh because it's actually his job and so i think the diversity of applications that are built for these these products is really important so you obviously have gaming which is kind of the first application of vr but all of this other stuff that affects you know uh all of that's developing too and i think they're at the center everything is vc like uh growth for free like it's it's just not priced in and in fact a lot of people um take the view of and i think it's very short short-sighted that it's costing them 10 billion dollars a year like that's crazy it's hurting you know but look if you want to if you want to build your own platform and not be beholden to the risks of you know apple where you get de-platformed you need to do uh so uh to give you i'd like to contrast i'd like to contrast the approach facebook has taken with something like amazon so uh when i look at a business like amazon i you know and actually there are if i look at the large chinese tech and the large u.s tax we look at facebook alphabet amazon microsoft uh tencent and alibaba let's say we looked at these characters uh there are only two of these players uh in my opinion that's amazon and tencent that are really off the charts on capital allocation so if you look at amazon for example you look at their balance sheet they have no cash they actually have net debt and the bezos approach and on the other hand amazon is an extremely innovative company they've gone after one vertical after another and killed it and the way amazon does it is they don't make one large bet they did not bet everything on aws aws was a small mickey mouse you know project on the side and as it started to get traction they started to put more resources behind it and they try to keep it under the covers for a long time but if you look at like for example uh the fire phone for example um it failed but amazon maybe put you know 100 200 million behind it uh pragmatically they saw okay this is not working we're going to move on and they have a lot of failures but i don't know of any amazon failure that absorbed meaningful amounts of capital relative to their scale so they they are continuously and all the time going into so for example very soon they will start competing directly with fedex and ups offering package services for non-amazon stuff you know anything i want to send to anywhere i can use amazon ups and fedex and they'll kill the pricing on that which will be really hard for those two players uh that's the example of how they're how they're innovating uh tencent is a little bit different in the sense that they are really good at understanding that they have limited competencies internally their venture and investing arm is off the charts it's at the level of sequoia or anderson horowitz at those guys i mean their long term returns on their outside investments have been 36 annual compounded return just amazing returns and they've done it globally and they've done it at scale um and uh on the internal projects that they put their money on they're really not willing to make these 10 billion dollar bets i mean they uh when they did wechat it was you know small 20 team on the side ranking it out so uh what i find is that an investment in 10 cent gives you a sequoia like venture arm which is very proven and scalable and it doesn't matter what the chinese do so if the chinese communist party gives them all kinds of you know roadblocks they'll just move they've already moved that engine to go outside china and just go kick ass outside china and uh in the case of amazon the innovation engine is just so extreme i mean the way he enters new geography so if i look at someone like microsoft they don't have a place to put the capital their balance sheet is drowning in cash so buybacks and that's pretty much the end of the story there's nothing else they can do um alphabet similar situation they've got a few plays they've got a lot of cash coming in but they don't have an investment investment engine that is really serious and they don't have internal projects which have discipline i mean if you look at what they spent on waymo uh that's been just a pipe dream for a very long time with nothing coming out the other end for a very long time when i look at facebook particularly uh mera mera is going all in on one bet which is the exact opposite of what bezos does bezos never went all in on one bet you only went all in one bed right at the beginning on books and then very quickly started diversifying those bets and went from there so from from my point of view i cannot give credit uh to mera to take vr mainstream the gamers will go for it the early adopters will go for it a lot of cool factors on that front but for them for them to go from that 10 million to a billion devices that is a massively very big leap and we don't so what i'm trying to say is that all i can do is i can say okay i know it's cheap i know i can get my double i know getting my double is low risk but then let me go to three years and let me see what they've delivered has the 10 million number moved to 100 million what are the next versions looking like are the non-gamers buying this is you know the housewife next door is she buying so what's your what's your perspective i think 100 million is is very achievable and again i think a lot of this has to do with form factor and it's not just one device so you've got the vr device which is kind of the bulkiest version of all of these products but they're building out a suite of devices so there's going to be a watch there's going to be you've got the glasses and then you have um the the software that that's gonna drive it so that will also work on um like i think pretty soon you're gonna be able to download horizons as an app on your phone and just use it as a way to experience 3d and 2d so all these things i think are working together um but look i think i think if if the if if these products are solving problems like when i think about all of their hardware efforts you know if if these products are providing let's say the same level of information and utility as your cell phone but doing it in a in a better form factor that's how you get to a billion users or more um so i i see you know everything they're doing with reality labs is a direct alternative to what apple and google and samsung and all the phone manufacturers kind of offer us through a phone now right now like most of us only carry a cell phone like some people might have a fitness device um i think the vast majority of people like if they're you know what is the one electronic device they carry on on their person it's it's a cell phone well that's going to change because over the next five years you're going to see all devices pop up that are going to allow you to take calls allow you to take photos allow you to to surf the web and allow you to take meetings without needing to pull out you know a 3x6 piece of metal out of your pocket so now does that mean that cell phones go away no but could it mean that maybe uh you know your your your budget for personal devices gets split maybe two-thirds one-thirds between cell phones and something else very possible so now now do you give them credit for that zero credit from that for that or or 20 credit for that or 50 credit for that that's on you but i think if if you're if you're trying to get a better sense of the overall sort of goal here it's it's to be in that market in a meaningful way which would mean you know hundreds of millions of users if not more um so that's kind of i think one part of it there is enormous other option value that's in this business that has to do with um just all of the ip that's being developed to make this stuff work so ai is part of that so like i think this is very interesting they've never talked about this but um they did recently put out a note saying that they've now um built the fastest ai supercomputer in the world or they had said something to the effect of like this computer will become the fastest and i think it was may or june or something like that of this year um there is going to be excess excess ai capacity in their farms of data servers that live all around the world could they build an aws like sas business that lives on all of these data farms that they've built all around the world using the best chips and the best technology the best you know kind of apis all that stuff they've never said it but it's certainly the kind of thing they could do it's kind of like you build something for yourself that's extremely powerful and then you're like oh wait we can white label this or license it out to other people other companies other corporations other startups um so i i personally think that's a really interesting aspect of the business that's not talked about um but does remind me of kind of the way aws it's interesting because google has sort of tried to copy them microsoft has tried to copy aws as well like they all have their offerings and i think it stems from the fact that they they have all these physical servers that sit around um that solve problems for them that they can then sell to corporate clients there's no reason why facebook can do the same they'll have to make a business decision as to whether it's worth it for them or not but that type of option value is there let's uh let's switch gears a little bit uh divya so you know if you look at something like whatsapp which is so popular and so awesome but it also uses publicly public key encryption so it's a very secure platform but one of the issues with whatsapp is that mera themselves cannot see the messages i am sending right because of the public key encryption so which means that the content that i am sending on whatsapp it's very different from gmail you know read your gmail and you know was doing all kinds of stuff with that um but here uh do you how do you think they can monetize whatsapp more than what they've done so far well here's what they've said um they have a product called click to message which um like where businesses can basically it's like essentially an advertisement where you can click on it and message the business directly so i don't know where the i mean i don't know what sort of traction they have with that but what they did say was that they're now hitting something like a billion messages between individuals and businesses on a weekly basis so i think to your earlier point like you mentioned your t-shirt um you know i can say this for myself like i've bought numerous products because of pages i've discovered on facebook and instagram but i've also messaged owners of businesses who run these accounts so like one example of this is um there's a flooring company local here in connecticut where i live uh and their account is managed by this woman who like she's the owner of the business like she's not like a marketing agency um but when i messaged the business like she responded um and so there's a lot of [Music] kind of individual interaction which is actually one of the reasons they recently bought this business called customer that's customer with a k so this was kind of an under the radar acquisition i think paid around a billion dollars but it's effectively um a customer support tool that they're going to offer to businesses so that they can better manage all of the interactions they're having with custom facebook through well through messenger through instagram so i think the strategy with whatsapp is is gonna be similar it's just it's gonna be figuring out how to give businesses tools so that they can they can you know respond better kind of offer better service to their customers so it might be the case actually you know it's the businesses that are on the platform that are ultimately you know doing the monetization for facebook um but it's look it's it's a large it's like another one of these call options you have on the business where you've got you know multiple apps you know i think of messaging you've got messenger instagram and whatsapp that all do messaging you know they each have two billion plus users um and they don't make much money off of that so how they do it exactly it's still a little bit up in the air but you know once they figure out uh what's getting traction that will be another spigot that they'll just turn on and um you know i think at a consolidated level when you add all you add up all these opportunities you can easily get the 20-plus percent revenue growth for a long time coming um and then yeah so divia uh do you own amazon oh yeah so i also own amazon i also own tencent i mean i do like those businesses but for me what about what about microsoft i don't own microsoft alphabet i do own google yeah look and alibaba what about alibaba i do own alibaba as well oh you have you have good coverage across the board i have good coverage across the board but what i like about facebook and i also like this about amazon when jeff bezos was there the founder-led approach like it's really i think very different from like the tim cook approach where you know with apple everything is very incremental you know they have this cash cow they incrementally improve it um but look anecdotally i haven't bought an iphone in like four years because like i don't care i don't want to spend another thousand dollars on a device with like a slightly better camera but to me that's it's not really solving any problems for me um but you know like the reason why i think bezos was you know like having him in their specific amazing capital citizens and i'm not sure that you know somebody else would have started aws you know the same way the same way he did and i think with it's the same thing like jassy is mini-me jesse is a bezos clone in some ways he might be better i'd be right about that you might be right about that but i think you know it's let's just put it this way it's hard to clone a bezos so maybe jassy's that guy and let's hope he is but i don't think bezos had jassy bezos had jazzy you know trailing him for two years and every meeting and every thing that came out of his mouth so i think that's the closest thing to bezos you can and and you know now jeff is distracted he's got too many other things so many other side projects going on yeah hollywood and yachts and all kinds of different things going on right so zuckerberg zuckerberg is 37 this guy is like at war he's not distracted right like you can tell this guy is all in and i don't think it's so i think i think jeff i mean i would say zuckerberg awesome i think he's very focused i think he's 200 or 400 in i don't have any issues with that my concern is that they don't have the dna they don't have the dna of an amazon where they can throw 50 things against a wall and then pick the six that scale and go run them i think his his dna is more about one big thing because one big thing is meta realty labs there's a lot of good to be said for that the good is he's very focused on that and none of the other guys are focused on that so you know if if the answer is going going to come out of big tech in this area like you think will come out of the big tent and there's nobody else who's putting in the time or resources other than metal you know but but apple i think it's a pie in the sky type of approach right now it's very far out and it's it's very much a r d project and i i like the amazon approach better which is more rooted in let's experiment on a lot of stuff let's keep it small scale and let's see what we can make happen so look i think when people think of metaverse a lot of them immediately think of the matrix and uh they think of a world where like you know our sparkly the matrix and just everything is digital we give up kind of our our real world lives and look for some people if that may be the case there's so much in between there you know from where we are today to that that sort of uh you know that that vision that is directly applicable to making their core services better and it's also about building their own ecosystem where they're just not tied to like applicable so i don't see this as like a moon shot in the way i see uh some of the stuff that you know elon musk going to space or something to that effect right um because we're already seeing commercial activity in 3d environments like for example there was a foo fighters concert after the super bowl that they hosted um there's gonna be more stuff that going on there's they're clearly that kind of stuff um and and again like the form factors here are really important people have to like people are gonna buy sunglasses like it doesn't matter um if we're you know like you don't need to make a bet on the form factor the point is five years from now that form factor is going to be digitally enabled it's going to be digitally native and it's going to do a lot more and i think you know if you ask like who's got the tech to put uh all this information in form factors that we use today facebook's at the top of that list so again i don't it's not like they're creating a new or looking to create a new device that people don't already use it's it's making devices that we like for example the watch right like like the way a watch will work 10 years from now is going to be just far more advanced than the way it works today and so if you have the choice like you're going to buy the more advanced watch especially if it's at a competitive price point so i don't see it as quite the bet maybe that you you're making it out to be but i think your other point which is completely true is you'll know a lot more about how all of this is tracking with every you know with every release that they put out it's i mean like we'll see how the the next version of the quest does because it's coming i would i would uh i would also say that uh closer to mars than zuckerberg is close to matter going mainstream so i think what elon has done with spacex is it's insanely profitable already and uh and and he's got all the tools and the the speed at which he's going so first of all any guy who lands two rockets backwards simultaneously i would never bet against a guy like this oh so i think anyone shorting him on tesla or whatever is dumb it's just dumb to short him um you know because you're not if you're not a buyer either no so i mean i think i think like i said i think the i think he's such a maverick and he also doesn't particularly care whether he's dead or alive you know i think he's got shareholders are not his concerns you know so uh so so i don't think uh elon is the greatest person to go long i definitely think you should not go short but i would say that him getting humans to mars um i'd say that's a higher probability than uh having you know two billion users and becoming and blowing out the iphone or whatever i think that um between those two if you put a gun to my head i'd say i'd go with elon and uh and because of of what i've seen in terms of extraction so far but anyway we don't need to make these either or bets i would say that probably what we should do is have this conversation maybe uh two or three years from now uh kind of revisit this and at that point we can look at what we've talked about now we look at kind of what the reality is then we'll see what the valuation is i see what what advances reality labs has made and then it becomes easier to say you know keep going keep the bet on move on whatever becomes easier to make that call yeah look i mean if you if you if you put aside all the metaverse stuff there's still plenty of growth in the core business left yes a lot of the stuff that yeah i mean related to ifa you know ultimately i think those get solved through better ai i mean essentially delivering targeted ads with less personalized data is this goal of advertisement advertising it's not just a facebook goal um and i think you know actually even today i was reading an article that um you know google is gonna phase out uh they're basically developing a new type of cookie um that sounds like they're gonna be testing in 2023 that will aid advertise help them achieve more with less essentially so i think um given how much is at stake you know the cfo mentioned it was like they estimated this was like a 10 billion dollar a year impact on facebook numbers um you know with every year if they can kind of get you know halfway there that's a pretty big swing not only in terms of revenues but also in terms of earnings um and there's just i think there's there's there's too much at stake for them to not solve the problem and it's it's an industry-wide problem so the whole industry is working on this um now so if they do that and uh you know you believe that their product initiatives with respect to instagram e-commerce um you know all the messaging stuff they're doing and the stuff they're doing with short form video is going to start um you know working then i think you get back to kind of a more normalized growth rate like i don't i don't think the reels monetization you'd mentioned reels ads earlier to me that's not rocket science they've done that before it's a brand new product it only came out and i think it was august of last year so we're talking about a product that's you know six months old monetizing it should not be that different from stories in fact they they explicitly said that on their call that it should be very similar yeah no i agree with that i think i think that anything that is uh facebook instagram their core red and brother products that they have today their ability to improve those innovate on those and get more targeted to make it more relevant is a no-brainer they can easily do that i think that's just within their sweet spot and i think that it's just that some of these other stuff which is more pie in the sky i think a skeptic like me even even a skeptic like me my take is someone like me could still buy the stock without that and evaluate in a few years and see if that's what uh so watch the movie for 20 years and go from there look i i think the reason they brought out reality labs was so people could see what you know what the core business is doing and when you look at the core business um their q4 operating margins actually went up not down versus q3 so this they did it was like a 48.6 operating margin in q4 um let's look at the core business you know unbelievable numbers like this is a massively profitable business um and so i think going forward like i i'm hoping people kind of see that distinction oh yeah like the core business is actually doing well and look on the metaverse stuff like the stock wasn't down because of metaverse i mean the stock was down primarily because of guidance when they said three to eleven percent top line growth in q1 like that was the shocker i think people were like what where's that coming from you know given that you just put up a 20 quarter um and you know that really comes down to you know i i suspect mostly idfa maybe with a little bit of um you know tick tock in there and then there's there's also the macro issue which is not really facebook specific but um interestingly ad pricing was up in the fourth quarter impressions delivered were up despite all the inflationary risks um you know that we have as a backdrop so uh like i i think the consensus view that you know essentially the first half of the year is going to be more challenging because of tough comps given when idea what do you think of the board changes in the last few years where it's become a lot of pro ceo board members like who are referring to well i'm just saying if you look at the facebook board now we've had a steady exit of a bunch of folks and then the people have come on they're more they're less likely to challenge zuckerberg well i i think it's it's hard to challenge zuckerberg when he's got the voting control yeah so what i'm saying is that he's he's got control he's got absolute control yeah it's overlaid by board members who are not really are not really going to uh you know their persona is not to go down that i think it'd be i mean i don't i don't have much faith in boards i believe in i believe in the entrepreneur and i i believe the boards don't do much anyway but i i do find it it is a it is a it is an advantage to businesses like facebook to have board members who uh do do intelligently bring some something to the table you know and uh they're not just you know yes men stamping everything [Music] it's hard for me to say how how much of an ear they have with mark um but it would i mean look short of short of him adding someone like himself you know on the board yeah short of him adding like a wildly successful founder on the board who's got a lot some gray hair like i think he's going to do what he thinks is best for the business like if it was for if it was up to the board i mean i prefer i prefer the board with me the teal than without me oh but peter thiel's a vc so he's out i mean like that guy's that guy cashed out i know but but he just left what i'm saying is i i don't i don't think i think i don't think of people in the vc i think peter hill is a really smart guy i think he really understands a lot of this stuff really well and and having a guy like that i mean i'd love to have an ability to talk to him that that'd be great i mean he's just a great thinker if if mark has a good relationship with peter and i don't know what their personal relationship is like i'm sure he could he would easily be able to talk to peter if he needed advice but peter phil's business model is investing in early stage businesses like i don't i think peter feels too busy with he's got hundreds of portfolio companies like i don't think he's that fixated on facebook i don't think he's adding any value to facebook um you know those are to me that's just dead weight like i don't you know like why why why why would you pay a guy who you know is is not really focused on you know your business i mean it's it's a nice name to have but i don't think it's like he's a controversial guy um and his focus is elsewhere i don't really think it is facebook i mean if anything peter is probably investing in stuff that he thinks might ultimately compete with facebook so there's an issue of you know potential conflicts to vintage there as well yeah i mean i think the board issue is a minor issue but it's just it just is it's a little bit of a a little bit you know where you uh where you end up i mean where the board was and where it is look the the board it's interesting when they bought instagram i'm not even sure the board knew about it like there was no i mean he's he's marching to his own drummer yeah like i mean there were decisions that he made that i mean i i just imagined like when they bought oculus you know like i don't know maybe i think i think facebook has done an incredible job uh some things they've been really good at their their ability to step up and pay i mean there were 17 people in whatsapp when they bought them and they paid whatever billion you know a billion per person or something they paid to get that message okay and that was a really good bet i mean he didn't he didn't care and i i know i i have a lot of friends who work at facebook they're very young some of them are early twenties making 400 500 000. he pays for talent he's very willing to take a kid to three years out of computer science and pay him for 500 000 if the kid is showing what he can do and so i really think that facebook gets a lot of things right uh and they do a lot of things really well so their talent pool is really incredible he understands that and he's willing to pay for that he also understands embryonic uh great embryonic acquisitions they've done a very good job i mean all three of them home runs uh just incredible i think instagram might be greatest acquisition of all time maybe even better than youtube you know it's just incredible uh what they've done so i think i have more faith that he may bring in another instagram as an acquisition than i have on meta you know so i think that their dna has shown their ability to find these great embryonic bets and they can be they can be wrong on 10 and right on two and that still works really well it's really bad yeah they do they can do a lot of stuff in the sub billion dollar yes you know where really it's sort of they're buying a bunch of tech and and talent and it's not so that they're um you know buying something for the buying something profitable or something you know they're buying as you said like embryonic they can they can do that all day long so so divya we can go forever but now there is a monger daily journal meeting starting and we've gone over an hour so uh should we bring this to a close because this yeah this entire audience is going to switch over to the manga meeting really soon yeah listen one thing i i'm curious to hear from you before we go um do you i mean i'm sure you talk to kind of value and sort of garp investors on a regular basis do you feel sort of on their radar because now i mean just again going back to valuation um i think yeah i think i think meta is in a place where it can attract a very different set of investors uh who would have never looked at this talk in the past uh i think i think the current valuation is very compelling um i don't think one needs to even understand what they would do with reality labs and all of that i think i think make a simple bet to double your money in two or three years i think that's a that's a pretty low risk bet there's no guarantees in this world but i think there's a good chance you can get a double in two or three years or less and then in the meantime you get the popcorn watch the movie put a lot of butter in the popcorn and if there's things starting to pop you can say okay i'll stay on for two three more years and see if i can get another double let's get to here um all right well listen thank you everyone for uh for taking the time this is this was an awesome discussion i'm glad we were able to pull through all the technology troubles in the beginning um and again if uh if you guys are interested there's much more content like this on some zero itself we'd love to see you guys join the community and again um we're going to be donating part of the proceeds to monish's uh foundation so uh looking forward to the next conversation manish we'll be in touch yeah and i think everyone should go back and watch the social network and see the half chinese if you're in action i think you guys will like that that's funny [Laughter] all right thank you thank you this was a lot of fun alrighty take care bye you

Channel: SumZero

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Id: IIsrZPv9xuE

Length: 65min 21sec (3921 seconds)

Published: Fri Feb 25 2022