Fund managers are divided on whether Meta Platforms, formerly known as Facebook, can continue its growth after the company’s rebrand.
The social media giant has experienced a turbulent few weeks after a whistle-blower shared documents revealing that the company knew of the harm its products cause and refused to address them.
Yet this is not the first time the company has encountered controversy. During the Cambridge Analytica data scandal it was discovered that millions of Facebook user profiles were used for software to help influence choices in elections.
But its founder and chief executive Mark Zuckerberg seems to have diverted attention away from this, for now, with his pivot towards the Metaverse, when it was formally announced the company would change its name change from Facebook to Meta Platforms – which becomes official in December.
Investors have largely benefitted from the company’s incredible growth over the past decade, and despite the recent volatility, it is still a top-10 holding for many global equity funds and forms part of the top-10 of the MSCI World Index.
Amidst the controversy and shift in focus to the Metaverse, Trustnet asked fund managers what they thought of the future for the company.
Despite the challenges the company has faced, Christopher Rossbach, manager of the J. Stern & Co. World Stars Global Equity fund, thinks the company still has tremendous opportunities for further growth and value creation.
“Meta’s global reach is unprecedented,” he said. “In the US and in Europe, it can add greater commerce activity, new advertising formats, payments ecosystems, additional functionalities and incentive structures for its content providers to entice younger audiences and engage and monetize existing users.
“In Southeast Asia, India and other places, average revenue per user on all of Meta’s apps has room to grow significantly with economic growth and digitalization,” he added.
In his view, its new corporate name and reporting structure shows the company is serious about the Metaverse.
“The Metaverse is potentially the next computing platform, a combination of augmented, virtual and mixed reality,” he said. “It is too early to say how it will develop in terms of content and timing, but Meta indicated it is spending $10bn on it in 2021 alone.
“It is a significant investment and it shows bold thinking from the company,” he continued. “Disclosing the size of the investment into the Facebook Reality Labs also shows that Meta’s core business is even more profitable than we expected and has many monetization levers to come.
“Those profits are why Meta has increased its share buyback to a massive $50bn while also spending $10bn and more on the Metaverse each year.”
He described Meta as “the biggest value opportunity” amongst the big US tech companies at the moment and added that any weakness in its share price represented “a great opportunity”.
Performance of Facebook/Meta Platforms year-to-date
Source: Google Finance
Mark Hawtin, manager of the GAM Star Disruptive Growth fund, also said the metaverse investment was “really interesting”, and “shows how much they are spending on that and how much it is depressing core earnings”.
He added: “It highlights something I have always thought; these mega caps are spending like mad on the next big things. This shows the order of magnitude and just how profitable their core businesses are.”
But despite this, he has fully exited his position in the company over the course of the past month.
“Short term, the Apple issue [of integrating the software on new updates across the IOS range] together with a softening economic outlook will likely make revenue expectations tough,” he explained.
The issue started when Apple announced that its latest operating system will require apps to ask for users’ permission to track them across other apps and websites for targeted ads.
In Meta’s most recent earnings call, Zuckerberg warned that the new privacy rules from Apple were already negatively affecting its business.
“That, together with the regulatory pressure, will cap the name for the time being,” Hawtin continued. “I am still positive on the long-term opportunity but for the moment I think there are better ideas to pursue.”
Some investors however, also worried about the long-term growth potential for Meta. Steve Wreford, a portfolio manager of the Lazard Global Thematic Equity fund, said he doesn’t own Meta because of its weak market position, and its declining “societal licence to operate”.
“The market position of companies like Apple and Google is that they own platforms, they own operating systems,” he said. “The market position of Meta is that it sits on top of other people's platforms.
“It's got the sub platforms, the obvious being the legacy Facebook platform, the Instagram platform, WhatsApp – but these are apps, they're not as strong as owning the underlying operating system – at any time Apple or Google could kick Facebook off.”
Wreford also said there was a risk that society may reject its business model.
He said: “The dichotomy that is very hard to resolve is that Facebook sees itself as a technology company, but the rest of the world sees it as a publisher.
“Facebook doesn't fundamentally believe that it has responsibility for editorial content, whereas society believes it does. This is the fundamental block here.
“If society were to turn around and make Facebook take responsibility for editorial content, then that would be a very, very challenging situation because the business model probably doesn't work under that environment.”