00:00Going through your note this morning, there's a point that you make, which I want you to reiterate
00:03here. That is, this goes beyond a company or a chief executive having a failure to communicate
00:08or some communications issues. This is more deeply rooted than that. Yes, it is. People have been
00:14saying, look, this is just fixed by a good conference call or maybe a podcast. The issue is,
00:21as you move into these new businesses that are not tied to your core ad support businesses,
00:27you're facing new competition. You have no history of success here. So you need to give us
00:34proof points, evidence that these bets are showing some signs of returns, right? It's so early in the
00:41process. But I just think, look, we're in a strange place where we're all relying on the company to
00:48allocate capital really, really well without getting any data points back of how the roadmap is moving
00:55in terms of ROIC basis. So Zuckerberg can't just don a new chain or a new haircut and solve this
01:01problem for the market because the market is punishing them for not having that clear message.
01:05Michael, I mean, was there any takeaway you got from what direction Meta is going in? Are they
01:09going to be a neocloud player? Are they going to use the capacity for themselves? Do you get any sense
01:14what the direction of travel is for them? Yeah, good question. It was reported heading into the
01:20quarter that they were approached by Anthropic, I think, to do a $10 billion deal over a couple of
01:29years. They acknowledged on the call that they've been receiving offers for their compute. And they
01:35may, depending on the offers, depending on their own internal use, accept some of those bids. It was
01:43very vague, right? And the point is, in 26 to 27, they're still capacity constrained. But they're saying
01:49in the out years, maybe they become more aggressive in their build out and use some of their compute
01:55power for third parties, right? So they didn't go all the way to say, we're going to be a hyperscaler.
02:00But they open the door to say that if we can't use the compute ourselves, we'll rent it out.
02:06Now, the question I asked in the callback with the CFO is, look, at some point, the bottlenecks of
02:12compute will probably ease and everyone's going to overbuild. And then at that point of overbuilding,
02:19the idea of getting these premium rents for compute may fall apart, right? We've seen this in other
02:25types of markets. So the problem we have is we have to wait to 28 to see really what the
02:31CapEx is
02:31going to look like to power this new hyperscaler model. And then we'll see what demand looks like,
02:36right? So it's put, no pun intended, a cloud over the story because you have to wait for the more
02:43details of CapEx spend and then some evidence of what they're going to do on the hyperscale side.
02:48Some opacity there. I want to turn to history if I could. And I wonder what lessons we can learn
02:52from the last time Mark Zuckerberg took the company on an errand in the wilderness like this. So we saw
02:58him go all in on the metaverse, legless virtual bodies and all. And we saw the market reaction to
03:04that, the skepticism that was inherent there at the beginning. Can we take any lessons from that?
03:10Is that a playbook that's useful here this time around as he gets into AI?
03:13Yeah. So I've maintained a buy on the stock and I knew this was going to be rocking. I kind
03:19of
03:19kicked myself for not being a little bit more cautious. But here's what I've learned, right?
03:25In 2022, there were two things going on. It was the metaverse and there was a shift from Instagram
03:32and Facebook's stories to reels, short form video, which they were looking at TikTok as a model.
03:39If you go back to 2022, the stock bottomed out at $100 a share. And people had real doubts about
03:45can they convert to more of a TikTok model? And they did really, really well. At the same time,
03:50the metaverse has not paid dividends. But this stock in 2022 was on sale. People were so negative.
03:57And it was a seven bagger from 2022 to 2024. So what I've learned is, look, these guys build great
04:06products. Zuckerberg does have an amazing track record of figuring things out. And we have to be
04:13a little bit more patient, but it's not a great feeling to kind of fly blind and wait for some
04:18data points from them to prove that this is working, right? But that's why we kept the buy on,
04:23because we kept the buy on in 2022. That was the right call way back.
04:27Hey, Michael, I hate to rush you, but we only have about 45 seconds here.
04:30You're willing to be patient. But is this market considering what's different this time as they've
04:35already made a mistake in those years past and having to do a pivot for 2022? Will the market
04:41be less patient this time around? Yeah, it's a great question. The metaverse is hanging over us
04:45too, because if people feel like they've turned a blind eye to the metaverse spending. So I think
04:51some of the grace they've had in the past has worn out. So that's a really great question. And that's
04:57why the stock is trading below 17 times earnings next year.
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