Market Like Zuck Again

In a shocking turn of events, Meta is up 500% after hours following an earnings call where Zuck promised to sell his monkey NFTs and launched a daily newsletter about AI.

I joke. I'm not aware of Zuck's NFT holdings and I don't think he is pivoting to become a Substack/Twitter thought-boi. However, he is shifting focus a bit in the short term and the market loves it to the tune of a ~$80B (+20%) in after hours market cap growth.

Here is Zuck's concluding statement from yesterday's earnings call:

Alright, so those are the areas we're focused on: AI, including our discovery engine, ads, business messaging, and increasingly generative AI, and the future platforms for the metaverse. From an operating perspective, we're focused on efficiency and continuing to streamline the company so we can execute these priorities as well as possible and build a better company while improving our business performance.

From there he passed the mic to his CFO Susan Li who walked us through financials. Here's a summary:

Q4 Revenue – $32.17 billion actual versus $31.65 billion expectedAdvertising Revenue – $31.25 billion actual versus $30.86 billion expectedAdjusted Earnings Per Share (EPS) – $1.76 actual versus $2.26 expectedFacebook Daily Active Users (DAUs) – 2 billion actual versus 1.98 billion expectedFamily of Apps Daily Active Users (DAUs) – 2.96 billion actual versus 2.92 billion expectedReality Labs Operating Loss – -$4.28 billion actual versus -$3.99 billion expected

Susan also announced a new $40B increase to their repurchase authorization (read: big increase in buyback plan to bolster EPS).

Given the $META rally post earnings call, it's clear that the general market sentiment here is positive. Everyone was down on Zuck and his weird metaverse avatars, but now he's into AI driven optimization so he's cool again. He's also committed to a "year of efficiency" (his words) compared to previous years of "the market doesn't care how much we spend so neither do we" (my words).

This earnings call brought up a few things for me:

1. The market is fickle and not to be trusted.
2. Don't bet against Zuck. Ever.
3. Private markets are better for innovation than public markets.

The public markets live from one earnings call to the next. Do the hot thing. Get rewarded. Do the long term thing. Get laughed at.

This was a big part of the thinking behind the Twitter go-private deal as it is with a lot of buyouts of that kind. Twitter moved laterally for years without any big innovations because everyone is afraid of how market will react to the bottom of the J-curve. We talked about those dynamics a bit in our presentation here.

For most public company CEOs, if you spend too many quarters in the red you're gone (as in fired). This creates a hard dynamic to innovate in unless you have enough control that you're not afraid of being pushed out.

There are only a couple ways I see where that can really be the case:

1. The public company is still led by a founder.
2. The public company gets taken private.

Historically, publicly traded companies that led by the founder outperform the rest of the market by 3.1x. That's a real number from Harvard Business Review you can see here.

On the $META earnings call I think Zuck toes this line very well. He understands that he needs to appease the market in uncertain times and in order to do that he prioritizes the hot thing (AI) and puts his long term vision on the back burner (AR, VR, Metaverse, etc.).

In the context of private vs. public markets I think this is a clear example of how different timelines for market checkpoints/pricing can lead to vastly different strategies. This was easy to forget in a 0% interest rate environment where everyone can kind of do whatever they want, but now that we have our feet back on the ground the dynamic is clearer.

If you're a private company - let's say a venture backed one - you will have to hit checkpoints every year or two in order to raise more money. Given that timeline, you can take swings knowing that you have a couple of years to get it together. When you do come up for air you will also be met by investors who are looking for you to track towards something exponential, not just grow linearly.

If you're a public company - let's say $META - you have to open yourself up to scrutiny every quarter. Given that timeline, if you don't have someone like Zuck at the helm it can be very easy to lose sight of long-term goals and focus exclusively on survival from one quarter to the next.