Why selling Facebook is a mistake | by Devansh | February 2022

Much of the analysis misses the point

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A year and a half ago, I wrote What Market Analysts Overlook about Facebook. There, I covered the fact that Facebook is so much more than a social media company. I alluded to the fact that their machine learning research and ReactJS were way ahead of the competition. I even pointed out how their ReactVR tool is the most advanced for developing Virtual Reality and Augmented Reality applications. Here is a small excerpt. Remember it’s mid-2020. Long before Metaverse was a word.

You can read and check yourself with the article

What happened? Facebook then had a great run, reaching new heights. And about a year after that article was published, Facebook announced its Metaverse aspirations, seeking to take social media into the VR/AR space.

The reason I mention this is not to portray myself as a stock market genius. This is just to point out that looking at earnings and growth doesn’t always paint the full picture. Sometimes it’s important to look at things from a technical perspective. Evaluate a company for the strength of its products, decoupled from the popular narrative surrounding them. Because popular/traditional narrative will always miss things/nuances.

That said, I will share why the huge sell-off in Meta stock is a huge overreaction. This article will share a few reasons why you might not want to give in to the negative hype. Because when you really look at Meta as an organization, there’s something to be excited about.

Much has been said about low Meta returns. This was actually one of the main reasons the sale started. The company expected lower returns due to factors such as Apple’s policy changes. Add to that the fact that Tik Tok is getting stronger while Meta’s social media engagement appears to be stagnating. And public confidence in the company is at rock bottom. Certainly very scary.

As you can see, Facebook is still very profitable

This sparked a huge sale. Part of this obsession with growth comes from the expectations of equities. Many big tech companies are still valued as growth stocks (Meta included). Many investors therefore have an almost unrealistic expectation of very high returns every quarter. Thus, Meta missing these returns while facing the aforementioned challenges spells doom and gloom.

From this article: https://www.fool.com/investing/2022/02/04/why-meta-platforms-stock-is-plummeting-this-week/. It seems that 7% growth is no longer enough

However, a very important nuance is missing. Unlike most growth stocks, Meta’s CURRENT situation is sustainable. The business is profitable with revenue exceeding $100 billion and profit of $46 billion in 2021. That in itself would be compelling. However, this profitability is also very important for the things I will talk about next.

Tik Tok has done something incredible: it has dragged the battle for our attention into the lowest possible unit. The clip size for Tik Tok when rolling out was only 15 seconds (with the 60 second and 3 minute clips being added later). By sinking this low, Tik Tok allowed itself to be capitalized on in the short form content market. It also made it impossible to go any lower. The fact that YouTube and FB could only compete by copying (via Shorts and Reels respectively) is one justification.

Facebook, TikTok, Youtube and other platforms are essentially players in the attention economy

Meta however also pivoted to two different (but related) verticals. The company has put a lot more effort into gaming, trying to attract creators and users to Facebook Gaming. Facebook has a few advantages over platforms like Twitch and Microsoft’s ill-fated Mixer.

  1. Users are already on the platform. This means there is less friction in acquiring new users.
  2. Meta contains tons of user data. For example, knowing that I like football and MMA, he could recommend games such as Fifa and UFC. This particular type of advertisement is much more attractive while attracting more new users.
News flash: the game will only get bigger

The second point leads to an interesting situation. Meta doesn’t need Facebook Gaming itself to work well. As long as the platform pulls through, the service will be valuable. How? ‘Or’ What? They can just use it to extract more data. The excellent Games Marketing Insights for 2021 on the Facebook site clearly indicates that they plan to explore this tangent.

Vertical 2 is the much talked about metaverse. It was a brilliant decision for a simple reason. As mentioned earlier, it is physically impossible to opt for shorter duration clips. We have already hit rock bottom in this area. Switching to VR/AR is a great way to add another dimension to this battle. This is one of the reasons why the Metaverse (if successful) will once again open the battle to our attention and provide it with a decisive advantage. Google has realized this too, judging by its investment in YouTube VR.

Good things take time

Both of these are new areas with tons to explore (especially VR). And it takes tons of capital and time to burn. One of the reasons Bell Labs has been so successful is that they invested in R&D without expecting immediate results. With the profitability of Meta, they have the same luxury. They can take their time, build a phenomenal product, play a long game. This allows them to offset short-term losses with delayed exponential results.

Another thing that pure financials always miss is that Meta is much more than a social media platform. I already talked about their ReactJS and Machine Learning in the previous article but things have progressed a lot since then. FB Machine Learning has accomplished a lot since that time. Machine Learning Developments You Need to Know: Jan 2022 covers two (insane) examples from LAST MONTH. React is still the industry standard for web development, app development, and VR/AR. Don’t discount the value of it all. The company is a leader in various segments and this is often overlooked.

All of this is why I find the Meta to be a good long-term buy. Obviously, I don’t know your financial situation, so I can’t say whether you should buy it or not. Hopefully this will provide another perspective that is different from the more fearmongering opinions commonly voiced these days (like this Motley Fool video and this Bloomberg article). Are you considering buying the dip? Sell ​​everything? I’d love to hear your takes in the comments below.

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