That is the question:
How safe and future-proof is their core business (arguably advertising). Are the reported 10 billion dollars of lost business due to anti-tracking policies just a minor dent in the road? Or are they the beginning of a sea change in market dynamics?
Here’s the thing: Anyone can sell online ads. It’s a market that does have low barriers to entry - though success of course depends on providing a differentiating factor to customers. For Facebook/Meta, their biggest differentiating factor has, in my view, been their ability to covertly track users across apps and across the internet, even when they’re not using any of Meta’s own platforms. And exactly that has been impacted by Apple’s OS changes, and may be further limited (though probably less severely for Meta) by Android’s upcoming privacy sandbox changes.
I agree with Terry’s remark (in the segment about Amazon - whose online ad business is picking up) that they have an advantage of first-party data - and user interaction. So does have Google with their search engine and other services (e.g. YouTube, Maps).
Facebook on the other hand? Much less so, in my opinion:
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Facebook’s popularity is waning. I hardly know anyone under 40 who’s regularly interacting with the platform. They’ve only shown me inane cheap prank videos, animal videos, dangerous driving videos and the like lately. It has become largely irrelevant as a social media platform, but is a glorified address book / messenger platform.
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So is WhatsApp. Though I see as having (had?) some potential, they’ve just largely failed to monetise it. Ads, business catalogues? Where are the business users that have embraced and are actively using WhatsApp to conduct business? Where are and have been food delivery businesses during the recent pandemic? It can’t be that hard, can it? You order in-app, and the delivery driver could contact you through the same proven and reliable instant messaging functionality. If I had to guess the most visible and active business users on WhatsApp, I’d guess it may be prostitutes - though their line of business is notoriously hard to monetise through commissions for US-based exchange-listed companies.
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Instagram. From my own observation, they’re doing the best job there. But still… is first and foremost a photo-oriented service. It’s not like user would provide them detailed search inputs that may allow for more effective targeting (unlike YouTube that has tons of product review videos etc., or Amazon and Google, even Twitter). And… it doesn’t seem an entrenched platform to me. Social media websites and apps can come and go, pick up or wane in popularity. I can easily imagine it could go the way of MySpace, be replaced by TikTok, Snapchat or another challenger.
That’s the thing: The numbers look good - and the recent share price drop may have been a market overreaction compared to the numbers.
But that’s my argument or doubt about it:
It’s an investment that looks good when you’re a fund manager crunching historical numbers and financial statements.
From a perspective of technology and market power, I have my doubts about the business going forward.
Those tech giants have a core product or platform that consumers keep coming to and interact with:
- Google has a search engine, YouTube and Android
- Apple has their mobile smartphone OS / hardware and ecosystem
- Amazon has their sheer online retail market(place) power
- Microsoft has their Windows desktop OS
- Facebook/Meta? Arguably the weakest (see above). They were very good at covertly tracking users - but that faces huge headwinds by anti-tracking measures in the name of privacy.
Meta’s content and platforms lack the entrenched quality that the others have. They seem the most vulnerable to me, their products and services can rather easily be copied by others (side note: same is true for Netflix and Spotify: they don’t have the strongest position with regards to media content. Though especially Netflix have acknowledged this long ago and invested heavily - and quite successfully - into original content).
Zuckerberg and Meta probably know and have acknowledged their vulnerability. And that’s: the primary reason and objective of their “Metaverse” push: To create a (new) platform service that has entrenched market power and can not be easily duplicated by others.
But that’s a speculative bet. And one that depends on technological execution. Of new technology - an area that Fundsmith have conceded (IIRC) themselves they aren’t most well-versed or keen to jump in with their investments (“we’re really suspicious of new technology”).