MetaVerse, meta and us: An overreaction and an opportunity

“Focus on long-term impact emphasises long-term thinking and encourages us to extend the timeline for the impact we have, rather than optimising for near-term wins. We should take on the challenges that will be the most impactful, even if the full results won’t be seen for years.”                                                                                                  Mark Zuckerberg

Just two weeks after Meta’s share price tumbled amid warnings of revenue shortfalls, its founder and CEO, Mark Zuckerberg shared a blog post.  The post wasn’t about earnings, user numbers or announcing a new project. It was on company values.  Zuckerberg somewhat modestly wrote that the company “had transformed a lot” since the values were last penned in 2007 and that they needed to be updated to reflect Meta’s next chapter.  It was poignant to us that the second value on his list of six was “Focus on Long-Term Impact.” After all, one of our abiding principles is to focus on quality companies over the long term.

We are a significant holder of Meta in our World Starts Global Equity Portfolio, and we continue to be so despite the revenue shortfalls.  We believe the market overreacted, with many investors opting to take a short-term view of events.  We also strongly suspect that some of Meta’s warnings of the increased competition from the likes of TikTok were deliberately directed at the ongoing antitrust case.  And we said as much publicly.

“We suspect that some of its warnings were a deliberate direction to the ongoing antitrust case”

In the immediate aftermath of its 2021 full-year results announcement on 2 February, our strong views were picked up, first by Financial Times columnist Robert Armstrong and second by Barron’s.  In this insight, we take a closer look at those results announced in early February and provide our view on why, unlike many investors, we are focusing on Meta’s long-term value.

META: An overreaction and an opportunity

Shares in Meta, the owner of Facebook, have fallen by more than 45% since its September high.  To recap, on 2 February, the company warned that first-quarter revenues would fall short of expectations in light of tougher competition from rivals such as TikTok.  Shares tumbled 27% on the news, their biggest ever daily fall.  The shares have remained subdued and had fallen to USD 207, a drop of 36% since it aired its results.

A snapshot of what Meta said when it announced its 2021 results to the market earlier this month:

Meta on impressions:

“We expect continued headwinds from both increased competition for people’s time and a shift of engagement within our apps towards video surfaces like Reels [its short video channel] which monetise at lower rates than Feed [its updating news feed] and Stories [its visual content channel].”

Meta on pricing:

“We expect growth to be negatively impacted by a few factors.  First, we will lap a period in which Apple’s iOS changes were not in effect and we anticipate modestly increasing ad targeting and measurement headwinds from platform and regulatory changes.  Second, we will lap a period of strong demand in the prior year and we’re hearing from advertisers that macroeconomic challenges like cost inflation and supply chain disruptions are impacting advertiser budgets.  Finally, based on current exchange rates, we expect foreign currency to be a headwind to year-over-year growth.”

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