Is the Metaverse destroying Facebook (FB)?

The popular theory that Mark Zuckerberg’s Metaverse is destroying Meta Platforms (FB), the company formally known as Facebook, could be prophetic.

For example, Meta’s revenue growth shrank by -4.47% in the quarter ending on 30 September 2022, Stockrow estimates. Consequently, Facebook’s revenues fell from $29.01 billion on 30 September 2021 and $28.822 billion on 30 June 2022 to $27.998 billion on 30 September 2022.

Similarly, Meta’s quarterly gross profits fell from $23.63 billion on 30 June 2022 to $21.998 billion on 30 September 2022. Moreover, Meta’s quarterly operating income fell from $10.423 billion on 30 September 2021 to $8.358 billion on 30 June 2022 to $5.664 billion on 30 September 2022.

Is Zuckerberg Mad or Out of Touch?

Hence, Meta’s quarterly operating income fell by almost 50% in a year. Skeptics will blame Zuckerberg’s Metaverse obsession. For example, tech columnist Ed Zitron charges “Mark Zuckerberg Is Going To Kill His Company.”

Similarly, Fortune’s Jeff John Roberts estimates Meta will spend over $10 billion on Reality Labs’ Zuckerberg’s virtual reality (VR) and metaverse experiment soon. Roberts claims Meta Platforms is no longer one of the world’s five most valuable companies. Instead, Meta is barely in the top 30. Plus, Roberts estimates Meta has 25% of its value since Zuckerberg started Metaverse.

Facebook spent $36 billion on Reality Labs between 2019 and 30 September 2022, Business Insider estimates. Conversely, Reality Labs earned $5.3 billion in revenue. Thus, Reality Labs lost $30.7 billion in three years if Business Insider’s math is correct.

Additionally, Fortune’s Jacob Carpenter claims Zuckerberg is mad because he’s “doubling down” on the Metaverse. Presciently, The American Prospect’s Ramenda Cyrus wonders if: “Mark Zuckerberg just doesn’t have that understanding of what people want anymore.”

She charges Zuckerberg is so caught up in the Metaverse he’s lost touch with the real world and the social connections that made Facebook successful. Instead of giving customers what they want, Zuckerberg hopes they will buy into his fantasy?

Ramenda alleges Facebook may not even own the name Meta. To explain, Justin Bolognino claims he’s run a business he calls METAx LLC for 12 years, CNBC reports. Predictably, Bolognino is suing Facebook for copyright infringement. METAx LLC provides virtual reality and augmented reality experiences for live events. Bolognino claims Zuckerberg destroyed his business by taking the name Meta.

How Much Money is Meta Platforms Making?

Meta Platforms Inc. (NASDAQ: META) is generating less cash. For example, the quarterly operating cash flow fell from $14.09 billion on 30 September 2021 to $9.692 billion on 30 September 2022.

Additionally, the quarterly operating cash flow rose to $18.104 billion on 31 December 2021. Thus, Facebook still generates enormous amounts of cash, but it generates less cash.

In contrast, the quarterly ending cash rose from -$1.707 billion on 30 September 2021 to $16.353 billion on 31 December 2021. The quarterly ending cash flow fell to $1.773 billion on 30 September 2022.

Notably, Facebook’s cash and short-term investments fell from $58.075 billion on 30 September 2021 to $41.776 billion on 30 September 2022. Thus, Meta has $16.299 billion less cash than last year.

Facebook is borrowing money

Cynics will note that Meta (META) is borrowing money. To explain, Meta reported a quarterly financing cash flow of $2.147 billion on 30 September 2022.

This borrowing reverses the company’s recent history of paying off enormous amounts of debt. For example, Facebook reported a quarterly financing cash flow of -$15.252 billion on 30 June 2021. Meta went from paying $15.252 billion in debt to borrowing $2.147 billion in year.

Conversely, Facebook’s total debts fell from $13.219 billion on 30 September 2021 to $9.922 billion on 30 September 2022. Similarly, Facebook’s net debt went from -$44.856 billion on 30 September 2021 to -$31.854 billion on 30 September 2022.

It appears Meta could go from a company that pays debts to a company that borrows heavily as interest rates are rising. I think that’s a poor strategy.

What Value Does Facebook offer?

Meta Platforms (FB) still offers enormous value that can grow. For instance, Meta’s total assets grew from $169.585 billion on 30 September 2021 to $178.894 billion on 30 September 2022.

I consider Facebook (FB) a value investment because it owns four of the seven largest social media platforms in the world. Those platforms are Facebook, WhatsApp, Instagram, and Facebook Messenger.

In January 2022, Statista estimates Facebook had 2.9 billion monthly active users (MAU), WhatsApp had two billion monthly active users, Instagram had 1.478 billion MAU, and Facebook Messenger had 988 million MAU.

Hence, I estimate Meta’s social media platforms had 7.366 billion MAU in January 2022. Obviously, there are many people have accounts on multiple Meta platforms. Yet Meta still has the largest media ecosystem in human history.

Therefore, Meta will retain enormous value and make vast amounts of money even if the Metaverse is a total failure. To explain, Meta will still survive and make money no matter what Zuckerberg does.

Thus, Meta is now what Warren Buffett calls an “idiot nephew company.” That is a business which can make money even if they put somebody’s idiot nephew in charge. The business is so simple and profitable even the idiot nephew cannot fuck it up. Notably, many critics charge somebody’s idiot nephew is now in charge at Facebook.

Is Facebook a Good Investment?

I still think Meta Platforms (META) is still a brilliant investment because of its enormous social media platform. That platform will survive the Metaverse.

I predict the Metaverse will fail and Zuckerberg will abandon it. To elaborate, Zuckerberg will either give up on the Metaverse or be forced to abandon it. Another scenario is the Reality Labs’ losses will drive management or investors to force Zuckerberg out. Either Facebook can go back to what it does best: social media. However, if I’m wrong and Zuckerberg is right about the Metaverse, Meta will be even more valuable.

I consider Meta (META) a value investment because its stock is cheap. Mr. Market paid $90.54 for Meta shares on 2 November 2022. The share price fell from $328.08 on 2 November 2021.

Moreover, I think the falling Meta share price could be a boon for investors. If the share price keeps falling, it could force Zuckerberg and company to pay dividends. I think Meta could become a tremendous dividend stock because it is a cash-rich business.

Value investors need to examine Meta because of the Metaverse. This stock retains enormous value that Zuckerberg’s crazy experiments will not destroy.