Tech Brew Ride Home - Thu. 10/27 – Meta (Insert Bomb Emoji Here)

Episode Date: October 27, 2022

(BOMB SOUND). That’s the sound of Meta’s disastrous earnings announcement yesterday. That’s the sort of insightful analysis you come to this podcast for. But also, Argo AI is shutting down. Google Cloud has a new blockchain tool for developers. And the Elon Twitter thing is happening. It’s really happening, people. Behave accordingly. Sponsors: ZocDoc.com/techmeme Links: Meta Tumbles as Sales Forecast Shows Depth of Ad-Market Weakness (Bloomberg) Meta Plummets 25% as Zuckerberg’s Plea for ‘Patience’ Falls Flat (Bloomberg) It’s Official: Meta Is a Disaster (Intelligencer) Mark Zuckerberg Is Going To Kill His Company (Ed Zitron's Where's Your Ed At) Ford, VW-backed Argo AI is shutting down (TechCrunch) Samsung's Third-Quarter Profit Plunges Amid Chip Market Woes (CNET) Google's new service helps Web3 developers build for blockchain-based platforms (ZDNet) Elon Musk Is In Twitter’s Office and Will Address Staff Friday (Bloomberg) Elon Musk, on Eve of Twitter Deal Close, Promises Advertisers It Won’t Become a ‘Free-for-All Hellscape’ (Variety) Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. That's the sound of meta's disastrous earnings announcement yesterday, and that's the sort of insightful analysis you come to this podcast for, right? But also, Argo AI is shutting down. Google Cloud has a new blockchain tool for developers, and the Elon Twitter thing is happening. It's really happening, people. Behave accordingly. Here's what you miss today in the world of tech.

Well, one of the most consequential earnings reports we've ever covered, meta's stock opened down 23-ish, this morning after reporting Q3 revenue was down 4% year-over-year. Net income was down a whopping 52% year-over-year to $4.4 billion. On the positive side, Meta's family of apps daily active users were up around 4% year-over-year to $2.93 billion. More on that later. But note, that's not what anyone cares about right now, quoting Bloomberg. The owner of Instagram and Facebook says it sees $30 to $32.3 billion in revenue in the last three months of the year, analysts had been expecting $32.2 billion, according to estimates compiled by Bloomberg, end quote. So let me sum this up quickly. Meta's ads business is shrinking. The shrinking might actually

be accelerating. This might be the tip of a longer-term trend, not a couple-quarter blip. Revenue declined 0.88% two quarters ago, 4.47% this past quarter, and META is now projecting a drop of 7.19% next quarter. So I said we'd come back to those good user numbers. They're still good. They're still growing. Remember, there was a time not long ago when the concern was user growth at META's apps had stalled out. Not so. It's just that META is not making as much money on users. all the sudden. As Jay Yarrow tweeted, quote, year after year, journalists said one scandal or another would be the end of Facebook. They were wrong. It took TikTok plus Apple to really rock Facebook, end quote. So the bottom line is, investors are now worried that meta is turning into a bad business,

or at least an aging one, a declining one. But more than that, they're worried that meta is throwing good money after bad. You might not know this, but meta has been repurchasing its own stock, over the past 12 months to prop the stock price up. It bought $42 billion worth of its own stock in the past 12 months at an average price of $300 a share. Meta's shares are now trading at $99 a share. Meta has lost more than $600 billion in market value this year alone. It is about to drop out of the ranks of the 20 largest U.S. companies. That all sounds bad. But remember, that's not the only money pit investors are worried about. Meta had to admit in its earnings call that it lost $9.4 billion on its reality labs, VR, and Metaverse units so far this year.

So far. Quoting Bloomberg again. On a call Wednesday after giving a disappointing revenue outlook, CEO Mark Zuckerberg, sought to justify Meta's ballooning costs to fund its version of virtual reality, the Metaverse, as well as the artificial intelligence fueling major changes to its social networks. Zuckerberg said he is confident that Meta's largest bets in areas such as short-form video, business message, and the Metaverse were headed in the right direction. He just couldn't say for sure how big the payoff would be. I think we're going to resolve each of these things over different periods of time, Zuckerberg said, and I appreciate the patience, and I think that those who are patient and invest

with us will end up being rewarded, end quote. So if you're an investor in Meta, you are facing this prospect. Meta's cash cow seems to be aging and shrinking, and instead of focusing on riding that ship, it's also throwing a ton of money. into a big new bet, its biggest bet ever. If you believe in this bet, the one on the Metaverse, look, go ahead, be a hero. You will look like the greatest genius investor of all time if this ends up winning out alongside Mark Zuckerberg. But if you do not believe in that bet, you know you have precisely zero power to change Zuck's mind about it. So what are you going to do? I guess what you do is you abandon ship, given today's market reaction and meta-stock price.

over the last year. If Mark Zuckerberg somehow announced that he was stepping down as CEO and bringing in something like a wartime CEO to refocus only on fixing the traditional parts of meta, I bet the market cap for the company would rise $300 billion or so in a day. But again, we know that will never happen. I also think there's something deeper here to worry about. This is quoting John Herman in Intelligencer. Mark Zuckerberg's story here remains the same. The core business still makes a lot of money, and the Metaverse is the next big thing, and we'll be ready for that. But it's going to take a while, so please be patient, which, sure, but we should be as clear as possible about what this means. That core business does continue to make a lot of money, but every possible alarm is going off regarding its future prospects.

Facebook, the main app, is not a healthy platform. Within Facebook, it's understood to be in a sort of managed decline, as users in its most mature and lucrative markets continue to use it and enjoy it less. Meta's big plan for the platform is to replace its guts with a TikTok-style recommendation engine, which, considering the raw material it will be working with, sounds like a rolling family reunion hosted in a chum box. Instagram is hemorrhaging attention to TikTok, and is midway through an unbecoming transformation into a TikTok clone, a playbook that worked for Twitter in the past when it copied Twitter,

and for Instagram when it incorporated a version of Snapchat's story feature, but which this time around seems mostly to be alienating users, creators, and advertisers. Meta, in other words, is profoundly remaking the older services that make the vast majority of its money. It's taking a serious risk in doing so. Materially, tampering with or failing to save these services is much more significant than Meta's Metaverse spending, but it's also not clear that the company has a better option. It took half a decade for Facebook's foul vibes to catch up with it, which doesn't vote especially well for Instagram in 2023. And while it's easy to joke about the specifics of Meta's Metaverse work, the promotion of

which has included staggering quantities of Raw Zuckerberg, this too should be understood as riskier and weirder than Meta would have us think. Meta became one of the largest companies in the world by selling ads on two of the largest social media platforms on the internet. It did this with a combination of shrewdness, ruthlessness, and a great deal of good timing and luck. Now the plan is basically to manage. manifest a whole new, more favorable environment in which it's free to grow without limits again. It's a blank slate within a blank slate. It's nothing like anything the company has succeeded with before. It's ambitious because it has to be, and we can't ignore it because Meta is spending

billions to make it happen. But nobody has to pretend it makes much sense either, not even Wall Street, end quote. So what I'm saying the point here is, the real battle going on in the background is meta trying to clone TikTok like it cloned everyone else? What if that doesn't work this time? And that doesn't even get into the talent question. Don't meta workers get some huge percentage of their compensation in meta stock? Now that that stock is back to 2016 levels, isn't basically everyone there taking a huge enforced pay cut? And then there's the question of what you're building toward. This is from Ed Zittron's newsletter this morning, quote. Eventually, the internal frustration with Zuckerberg's endless cash burn will lead to a brain drain in the company

and similarly a problem in hiring. Why would you want to work for Mark Zuckerberg other than money? What are you going to create? And do you think that people will like it? What mission would you be working toward? And can you rely on it staying consistent, considering it's been less than a year since the company randomly changed its name and entire purpose, end quote. The other big story yesterday was this. Autonomous vehicle startup Argo AI, which raised more than $2.6 billion, is shutting down. Sources say parts of the company and some employees will be absorbed by Ford and Volkswagen. Ford and Volkswagen were the biggest investors in Argo, quoting TechCrunch. During an all-hands meeting, Wednesday Argo AI employees were told that some people would receive

offers from the two automakers, according to multiple sources, who asked not to be named. It was unclear how many would be hired into Ford or VW and which companies will get Argo's technology, end quote. So maybe a bit of a maya culpa on this one. I did not see this coming. I had been assuming that Argo was one of the leaders in the self-driving space. Their tech was maybe the closest to being tangible. This might be because, as I've said many times, I've got these friends in the auto industry from the five years I spent in Detroit, and they seemed confident in Argo. Felt like Argo was really on the cusp of launching something real on real roads. But again, like Cruise, the other big traditional automaker play, Argo was one of the self-driving startups closest to the auto industry.

And also the C-suite of Argo were and our members of the Mutant Podcast Army were regular listeners to the show. You might remember we had Argo founder Brian Selesky on for a bonus episode. So maybe I had a bit of bias in not seeing this coming. But what does this say about the state of self-driving tech. Apparently, this happened because Argo couldn't attract new outside investors, and Ford and VW were not going to top up their own investments. Basically, both companies said they plan to absorb Argo tech and use it simply to make next generation cruise control, level two and level three driving applications, not the level four that Argo was going for. Here is Ford CEO Jim Farley yesterday, quote,

It's mission critical for Ford to develop great and differentiated L2 plus and L3 applications that at the same time make transportation even safer. We're optimistic about a future for L4 ADAS, but profitable, fully autonomous vehicles at scale are a long way off, and we won't necessarily have to create that technology ourselves, end quote. Remember when Adobe bought Figma, and we quoted someone as saying the rationale for it, would be, if you're facing an existential threat to your company's future, you make the calculation of how much of your market cap you're willing to spend to make sure the future doesn't leave you behind. Argo, Cruz, there are others. These startups can be thought of as insurance policies. Traditional automakers took out via investments and acquisitions to make sure the future, in terms of self-driving, didn't leave them behind.

What does it say now about this technology if two of the very biggest automakers in the world are like, nah, we're not. that worried about the future leaving us behind for the moment, so we're not spending any more money on these insurance policies. Real quick, I wanted to mention this for global recession watch reasons. Samsung reported Q3 operating profit down 31% year-over-year, the first decline in around three years, with revenue up 4% year-over-year, but semiconductor sales were down 14%. Quoting CNET. Samsung executives have had a pessimistic outlook for the chip market for months and have warned that relief may not come anytime soon. The second half of this year looks bad, and as of now, next year doesn't really seem to show a clear momentum for much improvement.

Kyeong-Kihon, who heads Samsung's semiconductor unit and serves as the company's co-CEO said at a media briefing in September, according to the Wall Street Journal. Prices for NAND flash memory, widely used in portable consumer devices are expected to drop 15 to 20 percent in the fourth quarter, according to market researcher trend force. Prices for DRAM chips used in smartphones and PCs, are expected to suffer a similar decline, end quote. Google Cloud has announced something called the blockchain node engine aimed to help developers build and manage blockchain-based products, starting with Ethereum, quoting ZDNet.

Blockchain node engine will allow developers to provision fully manage Ethereum nodes with secure blockchain access. However, Google notes that blockchain nodes are often difficult to deploy and require constant management, problems that the blockchain node engine service are designed to solve, With blockchain node engine, developers will be able to deploy a new node with a single operation, and they can specify the desired region and network. By comparison, manually deploying a node requires provisioning a compute instance, installing an Ethereum client and waiting for the node

to sync with the network. Sinking a full node from the first block, i.e. Genesis, can take several days, Google's blog post said, to ensure availability, Google Cloud actively monitors the nodes and restarts them if anything goes wrong. DevOps teams don't have to stand by for outages. The service also offers security assurances, placing nodes behind a VPC firewall, and using Google services such as cloud armor to protect nodes from DDoS attacks, end quote. Finally today, it's all happening, folks, at least at the time of this recording. You might have seen that yesterday Elon Musk changed his Twitter bio to Chief Twit and visited Twitter's San Francisco HQ. Twitter has told staff they will, quote, hear directly from him on Friday. He showed up to Twitter's HQ yesterday carrying a kitchen sink along with a tweet saying,

Let that sink in. Get it? Honestly, Elon is a worse dad joke maker than even I am. But it's all happening. I mean, sources say the banks providing that $13 billion in cash to help fund the deal have begun transferring the money, signaling the deal could indeed close tomorrow. But sources have also been saying that ahead of Elon Musk's takeover, advertisers on Twitter are concerned about looser content moderation and potential conflicts of interest for, for example, automobile ads. So, Musk has sought to reassure Twitter advertisers arguing his goal is not to make money, and the service cannot become a free-for-all hellscape. His words, quoting variety. In the letter posted to Twitter on Thursday morning,

Musk said most of the speculation about why he's buying Twitter has been wrong. The reason I acquired Twitter is because it is important to the future of civilization to have a common digital town square, where a wide range of beliefs can be debated in a healthy manner without resorting violence, the tech mogul wrote. Musk claimed he's buying Twitter not to, quote, make more money, but to, quote, try to help humanity whom I love. Twitter obviously cannot become a free-for-all hellscape where anything can be said with no consequences, Musk wrote. In addition to adhering to the laws of the land, our platform must be warm and welcoming to all, where you can choose your desired experience according to your preferences, just as you can choose, for example, to see movies or play

video games ranging from all ages to mature. He added, quote, fundamentally Twitter aspires to be the most respected advertising platform in the world that strengthens your brand and grows your enterprise, end quote. I guess we will have to do something tomorrow to mark this officially happening, but this is a weird sort of news story where I don't know, are they going to do a ribbon cutting or something? I'm not sure how to cover an event where it just happens. The news is the event, So maybe tomorrow I'll just do a segment where I say, It happened, it's done, and cue the drummerle. Nothing for you today. Talk to you tomorrow.