Chit Chat Stocks - Meta Platforms: The Future of Zuckerberg's Empire (AI, Smart Glasses, + More) With Rihard Jarc (Ticker: META)

Episode Date: December 4, 2024

On this episode of Chit Chat Stocks, we speak with company expert Rihard Jarc on Meta Platforms (Ticker: META). We discuss: (00:00) Introduction to Meta Platforms (02:20) The Surge of Meta's Stock (05:19) Core Business Performance: Facebook, WhatsApp, and Instagram (18:14) Instagram's Evolution and Competition (27:07) Artificial Intelligence and Monetization Strategies (35:22) Meta's Infrastructure and AI Revenue Opportunities (37:38) AI's Role in Advertising and Customer Engagement (39:37) Ray-Ban Smart Glasses: A New Era of Wearable Tech (43:37) Meta's Competitive Edge Against Google (47:03) Strategic Investments: Meta's Subsea Cable Initiative (51:49) Work Culture and Leadership at Meta (56:15) The Metaverse: Current Status and Future Prospects (01:00:44) Stock Outlook: Meta's Future in the Market RIHARD'S BLOG: https://www.uncoveralpha.com/ ***************************************************** JOIN OUR FREE CHAT COMMUNITY: https://chitchatstocks.substack.com/  ********************************************************************* Sign-up for a bond account at Public.com/chitchatstocks  A Bond Account is a self-directed brokerage account with Public Investing, member FINRA/SIPC. Deposits into this account are used to purchase 10 investment-grade and high-yield bonds. As of 9/26/24, the average, annualized yield to worst (YTW) across the Bond Account is greater than 6%. A bond’s yield is a function of its market price, which can fluctuate; therefore, a bond’s YTW is not “locked in” until the bond is purchased, and your yield at time of purchase may be different from the yield shown here. The “locked in” YTW is not guaranteed; you may receive less than the YTW of the bonds in the Bond Account if you sell any of the bonds before maturity or if the issuer defaults on the bond. Public Investing charges a markup on each bond trade. See our Fee Schedule. Bond Accounts are not recommendations of individual bonds or default allocations. The bonds in the Bond Account have not been selected based on your needs or risk profile. See https://public.com/disclosures/bond-account to learn more. ********************************************************************* FinChat.io is The Complete Stock Research Platform for fundamental investors. With its beautiful design and institutional-quality data, FinChat is incredibly powerful and easy to use. Use our LINK and get 15% off any premium plan: ⁠finchat.io/chitchat  ********************************************************************* Sign up for YellowBrick Investing to track the best investing pitches across the internet: joinyellowbrick.com/chitchat ********************************************************************* Disclosure: Chit Chat Stocks hosts and guests are not financial advisors, and nothing they say on this show is formal advice or a recommendation. Learn more about your ad choices. Visit megaphone.fm/adchoices

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welcome to chitchat stocks on this show host ryan henderson and brett shaffer analyze businesses and riff on the world of investing as a quick reminder chitchat stocks is a ccm media group podcast anything discussed on chitchat stocks by ryan brett or any other podcast guest is not formal advice or recommendation now please enjoy this episode welcome into chit chat stocks we have another fantastic interview coming up today with rahard jark who writes the uncover alpha newsletter and is the cio of new era investments i think maybe new era fund new era investments either way we will have the link to his newsletter in the show notes so go check that out if you are so inclined and today we're doing a full discussion on meta

platforms formerly known as facebook one of the big technology players owner of facebook whatsapp instagram oculus investing in ai as rahard had a recent tweet on is spending 10 billion dollars on a subsea internet cable so there's a lot to discuss today but rahard we talked or excuse me We've talked a while ago, but since the beginning of November 2022, barely two years ago, Meta is up over 500% since then. Their stock is up over 500%. I'll just open it with this. Why is it up so much? First of all, thank you guys for inviting me.

It's a pleasure to be on. um yeah so um to start off with with the big question why is meta 500 in the last two years um in 2022 there was some specifics around this company uh when i when people ask me and i talk about it um i often refer to it as like um you know the market still being irrational even if you are the top 10 company in the world and this is for me what happened with meta which basically in 2022 there were multiple of reasons why investors thought that meta is basically over from the ios change so apple changed their privacy policy regarding third-party tracking so meta and other advertisers online advertisers lost signal which is very important um was even more important

at that time for targeting so for for ad targeting then you had the rise of tiktok which was you know fueled by everybody staying home watching you know people they don't know because everybody that you know didn't do anything in the pandemic so you were kind of you know looking for stuff to watch um so there was that rise of tiktok and then you know also um meta or facebook at that time you know transitioned changed their name to to from facebook to meta and laid out their grand vision of the metaverse um and with it also explained to investors that they're going to spend tens of billions of dollars for the next years which was probably not that well timed um Because we were also entering the end of the Zerp era, right?

So those old factors combined kind of spiraled into this thinking that meta is over and they have too much issues and they will not be able to overcome them. And that happened. So all those issues kind of faded away. Meta found their kind of solutions for every problem. what was funny actually in december 2022 when the stock was 100 i actually wrote a piece saying meta short-term uh paying for long-term gain and i kind of laid out you know that most

of their problems um can be resolved by them so we're talking about cost cutting uh you know limiting the spending and stuff like that and it was the least read article from my newsletter which was funny because you know it shows you that sentiment in the short term really does drive stock prices and in the long term the fundamentals take over so so it was a mix of you know over negativism from investors as well as meta executing in the following years uh greatly so yeah it's a funny signal we uh sometimes have that here where we discuss a stock on the podcast or we do an episode on one and we don't get very many listens and it's uh it just doesn't garner a lot of interest and for us it's like we could be onto something here

there might uh you know there's less interest less less people covering it but i i remember specifically that time period uh writing one of my least timely tweets of all time and it's a good thing people hopefully don't listen to me but i said i think meta is uninvestable here i'm pretty sure at rock bottom prices uh just absolutely called the trough and it was it was exactly for the reason you mentioned which was the uh zuckerberg seemed very uh focused on the metaverse and obviously the name change kind of indicated that and it kind of seemed like there was no limit for a while to what they might spend on the metaverse they've since reined that in a little bit it seems and we're going to talk through some of their efforts here as well but getting away

from the metaverse getting to sort of their core business which is the family of apps we want to go through and get updates on i'm putting this in air quotes here the legacy units of the business because they might sound like legacy units, but they still seem to be growing. So why don't we start with kind of the namesake or the original namesake, Facebook, anything big blue. How is that business performing today? Is it still a big chunk of the pie for Meta and an important piece of the business? Sure. So Matter recently, so a few quarters ago, they decided to not share anymore the number of users specific for Facebook.

They only shared the users for all of their apps together. But until then, and still now for the whole core base, you can still see that you have healthy growth in terms of users. So it's somewhere around mid-single digits, quarter over quarter. And big blue, if you call it that, is still growing. And the reason why it's still growing, because in the West, it's satirized, right? But in other countries in the world, people still use it a lot. and even even like younger people or uh you know people from my age use it often for marketplace for groups for stuff like that so it's really popular um so it has more transitioned into a

more private environment than you know the the public town square if you will where it started off as first um so it's still growing it's still a big piece of meta's business but um both instagram and whatsapp are becoming bigger uh in terms of like just the whole pie um but yeah big blue is still important it's still where cpms are one of the highest um and if you want to reach a mature audience if you're an advertiser that's the place to go so um for me the most important thing when it comes to facebook um or any other of their assets is user users so user retention or user growth at some point user growth will we must expect it's it's like now 3.3 billion daily active users and they can't operate in china so basically plus 70 percent of the whole

population that has access to internet uses one of facebook's properties daily so um at some point we we must expect this to to to kind of stabilize um but uh until it it's still growing and it's not you know falling i'm very positive also on on that part of the business which is key in in a way yeah it seems like for years and years and years now big blue facebook has climbed the wall of worry uh seemingly every quarter but the one that's more exciting even or the two that are more exciting and don't worry listeners we'll get to artificial intelligence we'll get to uh ar and the new ray-ban glasses and all the exciting stuff we want to hit on the stuff that might be more near to midterm and one of those things is whatsapp we're seeing after maybe a

decade after the acquisition or i can't remember exactly when that was maybe it was you know five years after the acquisition, people are saying, well, they don't even make any revenue off this thing. And if you go from then to today, it seems like we're starting to finally bear some of that fruit. So can you talk us through that and what potential you see with WhatsApp and how that can be monetized over the next five, 10 years? Yeah. So with WhatsApp, you know, the reason why Meta didn't monetize it until, let's say, the last two years ago is because everything else was on fire. So Instagram was growing, Facebook was growing. They had a lot of growth drivers and they didn't need to pull the growth driver of WhatsApp for revenue. So WhatsApp continued

to grow as a product. Usage continues to grow. What I find really interesting is this year, we had on multiple calls, Mark mentioned that one of the fastest growing region for WhatsApp is actually the US. So this is shocking for a lot of people because they find it to be highly penetrated in the Western markets, but it's clearly not the case. So WhatsApp is continuing to grow in terms of users.

It's also probably the biggest, most important commerce slash communication asset in India. So everything that is related to commerce goes via WhatsApp in India and also in Latin America and other regions in the world. And in terms of monetization, so we got some hints that WhatsApp is over $10 billion in annual dollars in run rate. So because they monetize it via click-to-ads, so these are basically ads, And then they also charge a small fee for brands or companies communicating with clients.

And the biggest opportunity for WhatsApp, in my view, is going to be in the next, let's say, three to five years, where you will finally be able to monetize this feature of WhatsApp, which is companies communicating with clients. And the way they're going to do that is via chatbot, LLM, whatever we want to call it, because the biggest reason for limited adoption of WhatsApp communication between businesses and consumers was the human labor costs. So in the eastern regions, because labor is cheaper, companies were adopting the model of, I can have a person dedicated to answering WhatsApp questions, but in the West, this was too expensive. And now that you have LMS basically taking care of customer service, having higher satisfaction rates in some use cases than humans, you can imagine that, you know, Western companies will be very much inclined to adopt those agents to increase conversion on ads or to even open up new revenue streams, which are basically customer service revenue streams. Just for an interesting number, so the call center industry, right, which is something that WhatsApp can now target with LLMs, is half a trillion per year. So this is a number that is shocking to me, and this is only like third-party call centers. So we're not talking about customer services that companies have inside their, so in-house services, right? So for the first time with LLMs and WhatsApp,

Meta can now not only get ad budgets, but can actually get sales budgets. And I think WhatsApp is a really key driver for Meta for the next three to five years and even longer. Yeah, it's interesting. I feel like, especially here in the Western markets, iMessage is kind of the most popular just because of the popularity of the iPhone

relative to Android operating systems. And so iMessage is really – it seems like it'd be something that's hard to monetize from Apple. And a lot of people probably think the same with WhatsApp. But from what I understand, and I'm not a common WhatsApp user, it's more of a social experience, right, beyond just peer-to-peer messaging. And if I'm not mistaken, there's also a lot more business involvement, correct? Correct, yeah. it's much more also it's much more

a product that can be used for commerce as well because in India basically commerce goes by that so in Latin America you know you haul a taxi you communicate with drivers you actually do everything with WhatsApp so

it's much more so as Apple likes this privacy and stuff like that it's quite limiting to what they can do with the product Even though like WhatsApp is encrypted and everything, right, it's much more open to, you know, being a more flexible platform that can do more things than just send text. Yeah, and speaking as someone who's used both platforms, iMessage doesn't seem to get many updates except for, I guess, some new emojis and WhatsApp seems to have way more robust features. So it's quite interesting that perhaps this is not a priority for Apple, and maybe it shouldn't be because they got to focus on the hardware stuff. But for meta, WhatsApp could be one of the top priorities. And you could see them even with like, and I agree with Ryan, iMessage in the US has an incredibly strong moat.

but even with that the data that you're seeing the data that zuckerberg and all the other people are saying on their conference calls is that whatsapp is growing extremely quickly in north america so i wonder how long that can continue and if whatsapp can eventually dethrone iMessage do you ever think that's possible or is that part of your thesis i guess any thoughts on that before we move on to to instagram yeah i think it is possible because if you think about it like But who are, so the most native users in the U.S. of WhatsApp, at least at first, were, you know, people that are immigrants, came to the U.S., are working, and then they have families in other parts of the world. And, you know, over the years, more and more people will come to the U.S., work there, and, you know, want to have a communication line with their family. um so as long as that trend is there um you you have this you know tailwind for whatsapp

um business specific and also like just to to add one more point in terms of monetization we are very early in terms of monetization of whatsapp so i i often like analyze former interviews with former employees and other customers suppliers whatever and the thing about whatsapp is i read it from an interview with a former meta employee he explained that you know the cultures between meta and whatsapp were very distant so meta kind of left whatsapp for years to just do their thing but now in the last two years because they need more growth drivers from other parts of their business so um not just the big blue and and instagram uh you know meta infiltrated whatsapp and decided okay now is the time we're going to pull on the levers and pull in more growth and

pull in more revenue so um you can see a extremely higher focus on whatsapp in the last two years and we're going to see it even more in the coming years okay let's quickly shift gears to instagram there was a point i'd say maybe two years ago maybe a little longer now where it seemed like instagram was a bit at risk so there was the rise of tiktok short form content in general it was really tiktok at the time and they were being hit with the uh the advertising drop off from uh the i believe was the ios changes so it was kind of a double whammy there and i think a lot of people, a lot of investors were concerned that this growing cash cow for Meta was maybe seeing some heightened competition and at risk in terms of durability. But it seems like they've

completely reinvented themselves here. I guess, how have they done that? What does Instagram look like today and is this still a big growth driver for meta so you're right um a few years ago the notion was you know that tiktok is basically eating their lunch and that they will be a platform for pictures which in the end nobody will use right and when instagram tried to reinvent it and and start more video content and more content from third so from people you don't know right not just your family and friends we we saw backlash on social media saying no we don't want this you know we want to keep the old instagram and and all that stuff but in in the end if you listen to you know uh adam o'shea who's the head of instagram or mark or whatever they just explained look yeah

people they didn't say it like that but bluntly but um in a way they said people are talking that they want the old version but when we analyze their actions which we can see they actually want more videos and they're spending more time on videos so it's actually you know um it's a similar playbook that meta has done over the years um similar to you know if you remember snapchat which came out with stories everybody said oh this is like the next killer of instagram and then meta just copied the feature and they didn't kill snapchat right but they stopped so the growth of snapchat stopped drastically because you know um the thing for instagram is that they need to copy features that are interesting that are engaging for users

and make sure that it's on their platform so users don't have a high intent to switch platforms right so yes the younger audience and you know teens and everybody loves tiktok and goes there but if you look at data from the last few years they're not getting any like big growth drivers from so young adults or other demographics right um and that's variable valuable for meta because you know if it means that in the end tiktok becomes similar to snapchat which is basically for Mark's testing playground to see which features work and, you know, to have low income users because they're still, you know, teenagers,

they don't have much purchasing power for them to just play around. And then when they get older, they come to Instagram. That's a perfect scenario for Instagram in a way. So it's still from a user perspective, from a revenue perspective, and from an engagement perspective you know instagram actually became stronger because of tiktok because you know because because they introduced video and they introduced third-party

content they now have much higher engagement which leads to selling them more ads and having higher cpms so um it's it's actually a quite classic play playbook for meta over the years that they have done so similarly here yeah it seems like there was a point in time when people thought of social medias as these sort of this trendy industry almost like fashion where it's like something's popular in the moment and then it disappears um and there were points where it seemed like meta or facebook way back when uh was at risk of that the mobile shift was a big one where people thought facebook wouldn't be able to adopt or adapt um short form video they've very successfully rolled out reels i guess my question to you is how much confidence does it

give you that there have been all these shifts in consumer in consumption trends for content and media and that is still at the top yeah extreme confidence because we also have to remember we had be real we had clubhouse we had multiple of this you know kind of experiments trying to take over what meta has and the only real competitor that emerged in the last 10 years if you will is tiktok but with tiktok we have to remember this is not a small startup so tiktok spent billions tens of billions of dollars to get to this scale and they were financed by by dance which is a huge corporation in china right so it's not like you know uh yes a good idea uh from for a new social media company can just pop up and we were going to take over the incumbents

not at all you have to spend tens of billions of dollars to even have a chance and the question is also if you know we didn't have the pandemic would tiktok be at this size i doubt it because the pandemic was really the driver for us consumers to be bored and start you know looking for where i can get entertainment content um and tiktok was the place to go so um so yeah it's i i believe that you know you will have multiple tries on social media but um unless meta starts you know doesn't continue to innovate um then you have a problem but if they continue to innovate i don't see anybody um taking their throne um besides yeah of course they have a big competitor right now which is tiktok for sure yeah one follow-up on or actually two these are some

questions from twitter uh on instagram they said and they're referring to you when i said that they said ask him about threads monetization and then someone else said ask him about meta giving up vertical integration with instagram shops maybe anything important you think from both of those questions sure for threads again the playbook similar we want to build a billion dollar a billion user um base business and then we want to monetize it although there are reports out there that meta is um actually looking to monetize it in the next year already so this would be uh you know where it's still like around 300 million to 500 million active users um so this would be a change um but frets is still growing um meta is putting it in their flywheel and if you have

an asset in their flywheel it's it's hard for them not to grow it so uh i think frets for at least a few years it's not going to be that big to be that important for meta but it is another asset which you can count on to give you a few billion in revenue in the coming years when it comes to the shopping integration um so meta tried with shopping but because it's such a big business so their culture is if you don't see quick results they put the project on hold and they did that with shopping and i actually think it's really um the right move because meta is so you have tiktok which is now pushing you know the social commerce you have the chinese players who are doing similar uh you will now have nlms who will be pushing into this commerce space and stuff like

that but um the real problem is that in the west we have a different consumer behavior than the behavior is in asia in china um where consumers are more inclined to social commerce but what meta is doing is smart so they're basically looking at it and saying okay we have all the products all the features ready and let tiktok spend the money to change consumer behavior and when they do we'll be ready to turn on the switch and basically also offer it to our users. So in a way, it's a smart strategy because oftentimes they showed over the years that they don't have to be the first one to then dominate the feature or the space. So yeah, that's what I know from the shopping integration part, which is they didn't get the results they wanted to in

in a short time frame when they pushed for it so let's talk artificial intelligence how is maybe we can talk to whatever they're doing but how are they monetizing these new ai breakthroughs today what are they working on are they getting a good roi and on the spending you know maybe referencing the i think they call it llama all those llm stuff that they're they seem to be investing heavily in. This episode is brought to you by our friends at Yellow Brick Investing. Yellow Brick is an aggregator of the best stock pitches across the internet. By tracking thousands of blogs, newsletters, fund letters, podcasts, and more, they collect and summarize the best stock pitches and bring them to you in a single place. If you're a regular listener,

you know that we use Yellow Brick every single week here on the podcast to discover new investments or just find reports on companies we've already heard of. Try it for yourself. Simply go to joinyellowbrick.com slash chitchat and search a company or ticker you are interested in. You are bound to find a great report on just about any company. That's joinyellowbrick.com slash chitchat.

Heads up folks, interest rates are falling, but you can still lock in a 6% or higher yield with a diversified portfolio of high yield and investment grade corporate bonds on public.com you might want to act fast because your yield isn't locked in until the time of purchase lock in a six percent or higher yield with a bond account only at public.com forward slash chit chat stocks yeah okay so here we have a big topic for meta specific I often

I wrote about it I tweet often about it social media is and will be the fastest company or industry to gain profits from Gen.AI besides from

semiconductors and you know cloud providers and the reason is because they have an auction model so that means that if your ads are better are better performing the market will increase the price of your ads right and so let's let's take a step back and see what meta is doing and why they're doing it in terms of ai so first they're developing llama and they're open sourcing llama so this is the

foundation llm model and one of the key reasons why they're doing it is because they know that in a few years social media is going to be the biggest consumer of LLMs because you will have to use LLMs for ad targeting and ad creative so basically making the ads and you will also have to use it for content creation which is basically two parts of the business so it's the whole business is going to be dependent on the LLM and they know that you know if we if we don't develop this and if we don't open source it for others to help us develop this we will end up in a situation where maybe you have OpenAI you have Entropic you have maybe Google and at some point they will ask us okay now you have to pay for using the LLM and so Meta's margin is at risk you know if that

would to happen so they have to make sure that Lama and the foundation models are good enough for them to use it basically free so they just pay the infrastructure costs and they don't they're not dependent on some other provider in the future so this is the first part of what meta is doing the second part is um jni as we talked about affects let's let's first look at the advertiser so the advertiser gets better targeting because you can hyper you can make hyper targeted ads and the advertiser can use JNI tools to make the ads better. What that means is that you can basically adapt in real time different formats of ads and see what's working best, right?

And this is really valuable because this means that ads become really more effective. And at first, it increases their return on ad spend for advertisers, but in the end, it increases the CPMs, right? so this is basically revenue for meta um and this is like also if you check what happens with advertisers if they do so there was a survey what happens to advertisers if they don't have to spend that much on ad creative so on designers on ad agency stuff like that most of the cost savings from that would go to increased ad budgets again increasing revenue for meta so meta is basically in a few years they will cut out most of the small marketing agencies that help with design

targeting and stuff like that it's becoming a blue a black box where you will just say this is my product this is my i don't know web page catalog whatever make ads i want revenue i want profits whatever right um and then the last part of why so this is these are just short-term reasons for Meta to adopt Gen AI. The last part is user engagement. So if you have better content,

if you have more sticky content, helping content creators create it, you will also have higher user retention. Again, meaning at the end you will have higher revenue because you will be able to sell more ads. So yeah, let's

pause here because there There's still a lot of things where we can talk about in terms of the AI. I think that's very comprehensive. It makes sense that they would be one of the first ones to really benefit on the monetization side from the AI investments. I guess we've seen CapEx grow really quickly. And actually, you wrote an article on this. It wasn't particularly to Meta, but about the discrepancy we're seeing between a lot of the big CSPs and CapEx versus free cash flow. Do you think we see any sort of contraction in return on invested capital for Meta in the short term because of the increased CapEx related to AI?

yeah um so for meta it's the the good thing about meta is that you know most of the cap expanding that we're talking about are basically you know nvidia servers nvidia gpus if you want to be more specific right and um the good thing about meta is that even before the llms took over because their platform shifted from friends and family content towards I want to see more content from people that I don't know, you had to start using a GPU instead of a CPU because you had multiple... So the matrix of your options from a recommendation engine

spiraled extremely high, right? So Meta had to use GPUs already before and even if LLMs turn out to be something nothing real and you know a fad whatever which I don't believe to to be so but let's just play with that thought the only thing that happens to Meta is that they kind of pulled forward maybe three years of infrastructure spending that they would have to use it anyway because they're growing in terms of user spend users user time and stuff like that so for meta and this is also mentioned on their call their cfo mentioned it their infrastructure spanning is quite it's it's nice because it's really flexible they can use it on

multiple fronts right um and but we're also going to see new revenue for meta because of the llm so we so so far we talked about you know what does it improve in terms of the existing products but you're also going to see new products so um you're going to have ai agents which will help businesses and creators so this will be the first thing to to see so what does this mean this means that the creator will be able to you know have their persona on instagram and it will be able to talk to users um so to consumers and meta will be the first so it's the first time where they will be able to charge you know also influencers a part of their revenue or something that they're you know selling or whatever right because um the influencer will have each each influencer will

have their own persona and similar on a company level as well and that also a new source of revenue for meta is also meta ai so this is like you know the llm similar to chat gpt and here we can see you know perplexity open ai going into the search um ads and we're going to see similar meta going into search ads so not just having top of the funnel ads which they have so far but also bottom funnel ads which are basically google ads makes sense i guess no follow-ups there but is there anything else any other ways that meta benefits from ai that we haven't discussed yet there there's also um if you want to talk about ar right so meta rayban smart glasses um

ai seems to be the unlock of the product so making it more useful easier to navigate and stuff like that um so this is another part um and then you know with with llama they also have like it's open source but if you're a big user so if you have i think it's over 500 million users something like that so basically the cloud providers also have to pay a portion of the revenue that they make from products that are based on llama um so this is only for the big guys but this is you know yes it's small but it can be a few billion in a few years um i would imagine so is the most direct revenue contribution from ai you may have already mentioned this but do you think the most clear-cut most immediate i should say uh revenue contribution from ai would

that be the advertising targeting efficiencies yeah so at creative uh so first helping on and ads making it more effective on targeting and also whatsapp which we talked about before so basically using this ai agents to um start gathering you know uh customer service revenue call center revenue stuff like that so this would be the low-hanging fruit at first all right you mentioned the Ray-Ban glasses I don't want to confuse any of our listeners because I think they're only they might only be popular among 16 year olds at the moment uh in case we have someone that's never seen these or heard of these before what exactly is that and are we just hit on these quickly why do you think they've had such explosive growth over the last couple years

yeah so meta Ray-Ban smart glasses are basically uh you know a pair of Ray-Bans in which meta put in some tech and you can take pictures with it you can film so from your glasses and now with gen ai you can also navigate them so you can use voice and say metai can you translate what i'm seeing right now or can you take a picture or what's the time so basically the basic use cases of of uh llms uh and they have become really popular lately because they're really attractive in terms of the price point so it's three hundred dollars um for the smart glasses so it's not really that much more expensive than a normal pair of ray-ban glasses and uh you know people use them for you know filming when they go outdoors or biking or whatever so video is a

part of it but also surprisingly voice in terms of like listening to podcasts and stuff like that so it's like um some even you know change their apple apple pods to basically start using meta raybon smart glasses um and then again the lms are really cool feature and they're adding new capabilities to the lm so just recently they announced that you will have real-time translation so you can have a person speak in front of you another language and it will translate it in real time to you right so you can imagine that this is and we're only talking about first steps right but this is the product as it is today but i think in the next year you will see you know much more capable and much more fun products so um meta kind of hinted you know

their cto bosworth in an interview hinted that they're looking at something called the super censoring glasses and so glasses that basically hear and see what you see and they become your assistant so either by work so you can imagine you're going to work having the pair of glasses uh because they can look at like normal glasses they don't have to look like sunglasses and it's you know can memorize what you talk in a meeting it can summarize it um so you not only have an assistant for online which everybody is trying to do so apple and everybody else but you can also have an assistant for real life stuff right and then you can drive to home to do to your home and it says oh you remember your wife told you to pick up the groceries you need this

and that and that right so it can be an assistant wherever you go and this is not like a big it it doesn't take for a big technological revolution to make this happen you just have to add a few more sensors to it so it will probably be at a 300 to 400 price point and i think this will be a killer mainstream product uh because a lot of people want an assistant in their life but it's too expensive right makes sense yeah that's interesting uh as a human i might get a little bit nervous about all this stuff because i don't want people taking pictures of me constantly but yeah that's not a topic for an investor i guess we'll see how much um i don't know it's just gonna be really interesting if there's ever going to be one of these ar glasses that becomes truly truly

mainstream and maybe these Ray-Ban type glasses could be. You mentioned in a tweet that you said Meta is coming after Google. Perhaps a little bit of a provocative tweet, you know, trying to get some discussions going. Why do you think this and what sort of potential do you think they have coming after the Google search market? Yeah. So this is something that we mentioned before. So meta ai right they're integrating the search into all of their products um so the meta you can use it in instagram you can use it in whatsapp in facebook and the reason why i said that is because now you know you have users so meta basically the signal that they had is you're watching x and maybe you're interested in y right but now they they get data from so you can type in

i don't know i want to buy a bike um what's the best bike for i don't know off-road or stuff like that and it can answer the question and with it meta suddenly starts to get intent right so so you you get searches with high intent which is something that was mostly reserved for google and amazon as well um but now with this integration and with llms people can start asking questions in their apps and meta gets the signal and with it it also becomes really attractive for advertisers because it's the one of the first companies yes we can talk about google and youtube and stuff like that but that has really with it can get a really big scale in terms of the full funnel marketing right so they can target somebody on the top funnel with

instagram with whatsapp with facebook and then they can also target the high intent searches and basically offer advertisers which they already have all the relationships basically an upsell of their services and i think this is really like for meta it doesn't have to be you know google makes a huge number uh in terms of search so the revenue for search is huge but meta even to take a few billions this is where it all starts and you know it's not just going to be meta it's also going to be perplexity uh it's going to be chat gpt so open ai and all others but meta is positioned well because they have relationship with existing advertisers and they can they're the only one that can offer the full funnel marketing so um yeah okay another

tweet you had that I guess I just, I seem to just get my meta news from your Twitter account. But you said, meta plans to build a $10 billion subsea cable spanning across the world. I guess my question is why? All right, folks, if you're a regular listener to Chit Chat Stocks, then you know that we use FinChat.io daily. FinChat is the complete stock research platform for fundamental investors. They have robust financial data on more than 100,000 stocks globally, including company-specific segment and KPI data. Want to see Google's cloud's quarterly revenue growth? FinChat's got it. Like to track PayPal's take rate? They've got that too. And they recently added sell-side conferences and insider transactions to the platform. Best part is

it's completely free to sign up. However, if you want to get unlimited data, you can use our link finchat.io slash chitchat to get 15% off any paid plans the link will be in the show notes yeah um so this is not something new in fact if if you check meta already owns 16 so partially owns 16 sub cables um and the reason for doing this is because so here my speculation on why the main reasons are right one of the reasons is that if you own the cable you can prioritize your services to get better bandwidth you can get so you increase your quality of your product um but it also um if you own it you become less dependent on others because you know also microsoft and google specific they own a lot of sub-c cables but more importantly i think it's also a hedge

in a way, if you will, from Elon Musk and Starlink. Because, you know, Meta doesn't want a world where instead of telecom providers, the only two providers of internet in the world are Elon Musk and Jeff Bezos, right? So they don't want to have kind of this world. So this is basically a hedge, which I think is a smart move.

Because this $10 billion that they're going to invest, this is not like in one year. This is going to be a multi-year project. So it's going to be maybe, I don't know, $2 billion per year or even less for you to build out this cable, right? And then another thing as well, speculations are that it's going to be a cable that's going to go from the East Coast to South Africa, to India, Australia, and back to the West Coast, right? And this is, from a geopolitical standpoint, these are zones that are less risky in the world. So it doesn't have Middle East, it doesn't have South China Sea. And there's also one important country for Meta

to have a direct connection, which is India. India is Meta's biggest market. So more than half a trillion users use WhatsApp, more than 350 million use Instagram. TikTok is banned there, so basically Meta is taking over the whole market there. And for them strategically to have a strong connection and with it quality of products in India is really important. And if you bake in AI, which is going to require, you know, for you to have a good internet connection, this is quite important because a lot of in the third world countries, the internet connection is low and you even have products like, you know, WhatsApp Lite and stuff like that, that takes less, you know, space and less bandwidth and stuff like that. So I think it's a strategic position for Meta, again, to not be dependent on anybody when they build out their future. Yeah, it's funny you say they have half a trillion users there because someone might go, well, how penetrated are they in that market?

But that means they still have a trillion users left to go after. And it seems like for Meta, they are primed, or at least they have the most potential to monetize if India's GDP per capita keeps growing at a 5%, 6%, 7%, 8% rate per year. Well, let's move on to another topic, and that is the work culture at Meta. I think for myself, I think maybe a lot of investors out there, it flipped over the last few years from being almost extremely negative on a cost front where they seem to not be focusing on ROI in some cases, and maybe let that not be a focus to being a flip to being a something that you could even praise them for. They brought their

employee count down. They said they are seeing much better efficiencies there. So what do you think happened with that? Is Zuck still in, as they say, founder mode? And do you believe that is an advantage for them versus say someone like alphabet who has a a ceo that's not the founder or someone compared to amazon that again is retired seems to be in yacht mode what do you think about that and how that can help with zuck leading the charge here and seem to be extremely focused on a lot of these new products yeah so for zuck he said it multiple times meta is the thing that he wants to build out and he's still young so he sees his main productivity age coming up and he wants to build the legacy in meta not in some other company not having three more companies four

more companies whatever um so all his focus is on meta and this is a big advantage for meta shareholders but what did change in 2022 was that mark saw that because of the high growth in the pandemic and employment stuff like that the company became too bulk right so they had too much employees the decision making was slower and i again reading from an interview with a few former employees um they all explained that mark figured out that he's too far away from the product so before he was closer to the product now he's too far away and he decided no this is not the right thing because i want to get closer so he decided to cut you know in all honesty he was the only big tech company that really cut deep so it was like a 30 cut in the workforce all others were

like six five ten ish right so it's like um the only real big tech company that got fit was meta in that period um and he noticed that when they have less you know middle management when he's close to the product they're delivering faster they're executing faster and it's actually becoming a better company for shareholders and for employees and uh another thing which was interesting right meta in 2022 was they weren't really great for attracting talent because of their stock price because of everything that was going on at at meta but after they uh you know started open sourcing llama and stuff like that they're one of the most sought out ai research labs right now close to open ai right and the reason for it because ai researchers want so

developers engineers they want their work to be open source because it gives them recognition with their peers so it's a really smart strategy for meta to attract talent you know especially in the ai field because they can work on open source and then meta can harness them to also for them to also work in internal projects and monetizable projects so um in terms of the culture meta has done a big shift but i think the main kind of advantage benefit of meta is definitely mark he's super focused super motivated and this is the first time where meta is big enough where they can be one of the big players that also participates in this technology technology revolution because they were too small when the iphone came out um so when it

was mobile they were too small and now they're big enough for them to be able to be the leading company here and you know mark is really motivated especially if he goes against apple because he doesn't like it he doesn't like think cook he doesn't like apple because um he mentioned in a podcast that meta would be twice as profitable if it wasn't for the gatekeepers like apple and google limiting what they can develop and what they can do which is quite telling right because meta already makes over 50 or 55 billion per year so um yeah mark is extremely focused and i think it's like investors should praise having a CEO like that.

Yeah, I think that Zuckerberg's or Meta's workforce reduction in, what was it, 2022, it seemed like it gave every other big tech company the green light to do it themselves and they all kind of followed suit

and maybe it was like a nice cop-out for them if they were thinking about doing it anyways. But let's shift gears a little bit here. We've got maybe a couple questions left. I guess One that comes to mind for me, the company is called Meta. We don't hear the metaverse talked about quite as much anymore. There was the buzzword for like two quarters of 2022, I think.

What has happened here and where do you think the metaverse – what do you think the metaverse looks like in five years? Are they spending more on this? Is this something that they've kind of pushed back a little? Where does it kind of sit in their initiatives? Yeah. So I actually think the name change, looking in hindsight, was a good idea. And it's not because, you know, of the metaverse taking off or whatever, but just because if you recall, when the company was named Facebook, I think there wasn't a week where we had a negative piece on the company in the media

attacking it for I don't know Cambridge Analytica for other scandals for other stuff and since the name change it has become more neutral and people still don't like the term Facebook but when you ask them about Meta a lot of people don't even know they're like okay this is some cool company or whatever right so the name change if not for anything else has changed the perception in some which is useful because it wasn't a great brand perception to be honest and in terms of the metaverse so recently they shifted to spend more of the capex if you will towards projects that will deliver ROI sooner. So inside, you know, Reality Labs,

they shifted gears towards closer to the project that will deliver sooner projects like Ray-Ban smart glasses, which is seeing traction, super-sensoring glasses and stuff like that. So for Meta, it has never been just, you know, the metaverse has to take off in the concept that Mark has presented it,

it's enough for them for AR to take off. And I think AR is actually the biggest opportunity for them. And they had to deliver all that kind of, you know, a lot of their CapEx had to go in those direction for them to make the strides that they did in AR. If you recall the last MetaConnect event in September, they announced Orion, right? which is still a product in prototype,

but it's the product they showcased, which are fully AR glasses, smart glasses, right? And I encourage everyone, if they don't know, check out the videos from the event to see what this product is all about. But to me, it's the first time where I see from any big tech a really big technological change or innovation uh in the last maybe 15 years um because honestly apple hasn't done much they have just you know tim cook is great in terms of like giving buybacks

dividends uh financial engineering stuff like that but in terms of a product innovation and not just changing the size of the camera. He hasn't done much, to be honest. And, you know, we are, what, 12 years from the death of Steve Jobs. So Tim Cook will have to deliver in the next cycle when the technology changes, innovation. And we are yet to see that. And from Meta, you see that innovation very clearly.

And the event actually was perceived positive in terms of like investors, the media, stuff like that. Because it really showcased what they have been working on all these years. Yeah, if you look at Vision Pro, I think we're less than 12 months from that formal release and we can almost conclusively say it's a giant flop. So, so far, yeah, Meta seems to be doing much better

in that category, although it's still an extremely early stage product category. as we wrap up here let's connect things back to the actual stock how are you looking at it for the next say five years as a shareholder it's done extremely well over the last few years what are your expectations and maybe what is a the risks and a postmortem that you could look back and say okay it didn't work out holding meta stock yeah so i have been a shareholder meta for quite some time i bought it i think in 2000 2017 um and then i added to it multiple times i added the most in 2022 uh where at some point you know you still your thesis is like am i an

idiot or is the market really this wrong right uh and thank god i stuck i stuck to my thesis and you know um got rewarded for it but if you look at like if you cast aside the 2020 75 drop in stock price it hasn't done it's not like extremely overperformed any other big tech name to be honest right so for me it's still the my biggest position um i i still look at it quite attractively because, yes, it's valued at, what, 27 times this year's earnings. But if you strip out the $20 billion in metaverse spend, it's under $20. And for me, the metaverse spend is like a call option. So in three years, either this stuff works out

and they're going to see some return and you're going to see the market price, you know the the reality labs not zero or negative but positive in value or it doesn't work out and meta suddenly their core business suddenly has 20 billion more in profits than it had right so it's like a call option at this point because you're getting it for free in the market um the risk of course there are risks to this um my biggest one would be i always the first thing I look when meta reports is always the user number if we start to see users decline that would be a problem for me and um that would be the point where I would kind of you know really

re-value my thesis and see where this is going why the users are dropping uh I have high you know expectations and with it confidence that they will deliver in terms of increased roi on ads with it increased revenue but the only thing that they need to keep an eye on is the users because as long as the users are there the advertisers will follow um this is how this works right so it's like for me that's that's the most important metric uh i'm also monitoring carefully tiktok but i think at this point and with all the you know even if it doesn't get banned or whatever or or sell off or you know um it's still something that is out there and has advertisers on their edge so we saw that in in this year many advertisers didn't want to commit

teams to work on TikTok because they they said what if it gets banned in six months and I committed you know my budgets my teams to learn about TikTok right so it doesn't make sense so um for me it's just meta has to you know keep the users and if they keep the users I think they'll be fine um and I think they have a lot of opportunities with Gen.AI with products like whatsapp um even commerce at some point social commerce will take off in the west as well and there are only a few companies that are positioned well and the best one is meta uh besides from the chinese players right you also have like maybe an asset like pinterest maybe even snapchat but besides that you don't have anything right so it's like um there's a

reason why you see amazon recently doing deals with meta for advertising and doing deals with snapchat and pinterest and there's a reason why this project is reported to the ceo of amazon directly right um so everybody is monitoring because once you know this is the old saying where the trend is slowly slowly and then it starts to grow fast um if tiktok with its subsidies changes the user behavior it will be a different e-commerce market in a few years so everybody needs to be ready for that and meta is actually greatly positioned for that even in gen ai right just just to add the last point in gen ai they're probably one of the rare companies from the big tag guys that isn't in

danger. Gen.ai is not going to create a new social media, but it might create the fact that you will see more content being created by AI, which actually might benefit Meta because they will be able

to make even more sticky content and addictive content. Yeah, I even forgot that TikTok is supposed to get banned. i guess that could be another positive for them brian it seems like you have a follow-up before we close out here no i was just gonna say what a you know looking back over all the different iterations and evolutions of social media over the last 15 20 years what a durable network effect

it seems like meta has i guess last question anyone that wants to hear more from you read more of your content, where can they do that? Yeah, so they can go on uncoveralpha.com so I write a newsletter on Substack I write about big tech companies, small caps mostly technology companies

in the AI cloud and at tech space they can go there and they can also check me on Twitter if they want to you guys will probably put in the links so they can easily access it

Yep. We'll do. We will have those all in the show notes here. So if you're listening on Spotify, Apple, wherever you get your podcasts, go ahead and check those out. Brett, you want to take us out here? You forgot the disclosure, how to say it? I did. I guess I can say it. All right. Let's close things out here. Thank you, everyone, for listening. As a reminder, we are not financial advisors. Anything we say on the show is not formal advice or recommendation. Ryan, I, or any podcast guest may hold securities discussed in this podcast, may have held them in the past, and may buy, sell, or hold them in the future. Thank you to Rahard. Check out all his stuff.

Make sure to check out all our sponsors as well. Finchat, Public, Yellowbrick Investing. And we'll see everyone next time. Bye.