Meta Platforms (NASDAQ:FB) stock is down because CEO Mark Zuckerberg has a credibility gap.
Shares fell from an October high of nearly $380 each to just $306 early this month before bouncing back recently. The stock looks due to open Dec. 20 at about $327. That’s a market cap of $928 billion but, more important, a price-to-earnings ratio under 24, below that of the S&P 500 index.
For a highly profitable growth stock, this makes no sense. Facebook regularly brings one-third of revenue to the net income line. Revenue growth this year is expected to exceed 30%.
There can be only one reason for it: Investors like me no longer trust management.
The Credibility Gap
The phrase “credibility gap” came about before Zuckerberg’s time. He was born in 1984. The phrase dates to the Vietnam era, describing a vast distance between government statements and reality.
As a recent Yahoo Finance survey showed, many investors hate Meta. The reputation doesn’t hurt the business. It would seem to make the stock a bargain..
But Meta is still taking the blame for the rise of autocracy, not just in the U.S. but globally. Its use of data, not just for advertising but for pushing content, has been called an “epistemic coup.” When corporations and government know more about you than you do about them, the argument goes, democracy dies under manipulation.
October’s release of The Facebook Papers show management knew just what it was doing to our system of government, and did it anyway. Even the company’s own oversight board wants more transparency.
Why Meta, Why Now?
This is only one reason why the company is rebranding as Meta Platforms, which will eventually result in a ticker change to MVRS.
A second reason is that virtual reality, augmented reality, and artificial intelligence software are the new gold rush in technology. The former Facebook had $57 billion in cash and securities at the end of September to go after it.
But the metaverse has the same problems Facebook did. A lot of people are garbage and, when they go online, they act out.
The company’s headsets and haptic gloves are seen as the client interfaces for these new worlds. Game design from Unity Software (NYSE:U) and its many competitors (which now must include Meta) is being redeployed to create imitations of life where people can interact directly, regardless of location.
There’s a third reason for the move, which is why I call the company a Cloud Czar. Meta has 15 cloud data centers, 10 of them in the U.S. alone, which handle its traffic just for the cost of capital. Facebook is launching a 50% hike in capital spending, to $29 billion-$34 billion, in 2022. This will cover data centers, client interfaces and the new software.
The bull case for Meta Platforms stock then becomes simple. They’re going to be out with these capabilities long before anyone. They will have the hardware, the software and (perhaps more important) the network to serve these new worlds, on a global basis. It will be the biggest monopoly in the history of the world.
The Bottom Line
If Meta engineers can pull this off they will be miles ahead of the rest of the industry, even other Cloud Czars like Apple (NASDAQ:AAPL), which is now worth three times more.
What the market is saying, however, is that Zuckerberg won’t be able to sell it. Governments already see Facebook as a threat to democracy. A more immersive version, they believe, will be unacceptable.
We have seen what Zuckerberg can do without proper governance. No one trusts him to get this right. Until Meta accepts the limits of governance on its new world order, it won’t be allowed to happen. Meta’s huge investment could be wasted.
On the date of publication, Dana Blankenhorn held a long position in AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. Just in time for the holidays he has a collection of COVID-19 stories at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.
