“They can’t keep growing this fast forever” - Mag7haters since 2017.
Outlining Meta’s total addressable market and growth limits solely through global advertising budgets might prove to be short-sighted. Let’s hope it doesn’t end up like it did with Google a year ago, when the company was written off as a fading search engine business whose growth had finally reached the end of the road.
Surprisingly, the world’s best companies—which have endless resources to hire the world’s smartest people and the ability to buy/compete/copy/bully every significant player out of the market—manage to continue performing strongly year after year.
Meta controls the world’s largest social infrastructure, with over 3 billion people using its products daily. Zuck’s ability to squeeze every shekel out of this is truly phenomenal, and the optionality for monetizing different platforms remains quite extensive. Yesterday, payment tiers were launched for WhatsApp, Instagram, and Facebook.
Then there are these visions of AI agents that would run the entire advertising/sales stack within Meta’s systems on behalf of the seller—from visual creation to precise AI-based ad targeting, transactions, and customer service.
Corporate customer service agents would operate via WhatsApp, with payments handled directly within the system. On the buyer’s side, Meta’s shopping agent would handle the whole deal instead of you opening 10 tabs yourself to Google prices and shipping. At every step, Zuck takes a commission, moving into other territories and eating the lunch of companies like Adobe, e-commerce platforms, as well as sales and customer service employees.
The Metaverse was a miserable flop, and I don’t know if anything will ultimately come of the smart glasses, but these new visions seem significantly more credible than the Metaverse. The re-acceleration of revenue growth and improved operational efficiency show that there has been some return on AI Capex so far.
It is clear that Meta is no longer an “asset-light candy-like free cash flow machine” (at the moment), and I’m not entirely sure if the market’s pain threshold has been found yet regarding Capex. I suppose these are aimed at ensuring the company has as much cloud compute as it will ever need, so that no one can cuck Zuck and squeeze Meta’s margins by raising prices.
The narrative is currently unfavorable for Meta—the play is supposed to be “long memory cards/short capex spenders”—and because of that, Meta has been available to buy again for the first time in a long while at a forward P/E (fwPE) under 20, much like Google could be bought at similar multiples a year ago when the story sounded bad.
We’ll see how it goes; personally, I’ve learned the hard way not to bet against Big Tech.