Meta stock surges again: how so many got it wrong

As Meta stock surged today on yet another quarter of strong earnings, it’s time to reflect on how so many people this wrong. Funny how people keep blaming the buybacks or layoffs. Those helped, but what is overlooked is just how insanely profitable and dominant Meta’s core advertising business is, both Facebook and Instagram. What about slowing growth? People put too much value on growth, and overlook recurring earnings. Meta earns $30 billion annually in pure profit, which goes to shareholders even in the absence of growth.

Metaverse is so 2022. Wall St. has moved on, and so has Meta to some extent too. I remember all those 2022 YouTube ‘mini documentaries’ about the ‘death of META’ or about Metaverse losses. So much for that. Here is one such video from 5 months ago, titled “Facebook is Dying: Meta Employees and Investors Hate Mark Zuckerberg’s Metaverse”:

Already the media narrative has started to flip, from doom to boom: How Zuck Got His Groove Back. Only, I was 6 months ahead of the crowd, telling people in late 2022 to buy Meta while it was $100, and having bought FBL (a 1.5x leveraged ETF that tracks Meta stock).

I have found that people tend overestimate new technologies and trends, and underestimate existing trends. The biggest thing right now is online advertising. It was the biggest thing a decade ago, and even a decade before that, and a decade from now will be even bigger. It’s not AI, VR, crypto, or anything else that has momentarily captured the public’s attention. Tech companies are investing way more brains and money into finding new ways to show ads and bypass ad-blockers, than anything to do with language models (that’s not to say language models are not important, but it pales in comparison to advertising).

Pundits were certain online advertising was a bubble in 2012, after Facebook’s IPO, which has eclipsed even the most most optimistic of forecasts, which were already very optimistic. Every year this prediction is made of an impending online advertising bubble, and they keep being wrong:

Ad spending exploded in 2020, during and after Covid. Multinationals, fin-tech, and healthcare companies shoveling hundreds of billions of dollars into ads , such as capturing the deep-pocketed ‘boomer’ and gen-x demographic, and a good chunk of that money goes right into the coffers of Alphabet and Meta. As the US economy grows, as does consumer spending, it stands to reason so will advertising, even in spite of ‘click fraud’ or better ad-blockers.

What is alternative is there to the multi-billion dollar mobile ads market? Where else are Wix and Squarespace going to advertise if not YouTube (owned by Alphabet)? Or podcasts (such as Spotify)? Nothing. Admittedly, it does sorta seem like bullshit…”How much storefront, cloud hosting, or site builders does the world really need?” But given how common the ads are, apparently a lot.

Social media is where everyone is, and I mean that almost literally. This week Tucker’s show was cancelled. Despite how much media attention his cancellation got, his weekly audience was just a few million. That’s it. Facebook by comparison has 2 billion users. Instagram has a billion.