Since disappointing earnings sent shares down 20% early this month, analysts have been predicting a comeback for Meta Platforms (NASDAQ:FB). But that’s not happening with FB stock.
Shares were due to open Feb. 22 at $203.50. The post-earnings plunge had it at $240 per share. The market cap is down to $560 billion. The price-to-earnings (P/E) ratio is below 15.
This is not about macroeconomic headwinds or Ukraine. Snap (NYSE:SNAP) is up 8.7% this month. Twitter (NYSE:TWTR) is down, but by just 3.5%. The problem is the children want ByteDance’s TikTok. The company’s user base is aging. On top of that, its approach to its data centers is questionable at best.
Mark Zuckerberg may be the Henry Ford of social technology. But that’s a double-edged sword for FB stock.
Meta Risks Losing the Metaverse Race
Like the Ford Motor Company (NYSE:F) founder, Zuckerberg controls his company’s stock. But he is getting into a market war he cannot win.
Zuckerberg has put billions into capital spending this year, mostly for software engineering his vision of the “metaverse.” That’s a combination of augmented reality (AR), virtual reality (VR), gaming and finance, all layered on top of existing cloud-based systems.
The metaverse is the biggest technology vision since the Web was spun a quarter-century ago. It will require new clients, a lot of bandwidth and very low latency. It’s the job of a decade, not just a year or two. Meta’s hardware is not designed to handle it.
Meta is a “Cloud Czar” because it has hyperscale data centers around the world. These centers were bought with cash flow. Once opened, they drop the company’s hardware and scaling costs to near-zero.
This is what makes Meta so profitable. You can count the companies sharing this advantage on one hand – Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and Amazon (NASDAQ:AMZN).
Meta Platforms’ Data Center Problem
The problem for Meta is where the centers are located. There are 15 built or under construction in the U.S. Additionally, three are in Europe and one is in Singapore.
But many of the company’s fans are in the Global South: India, Southeast Asia, Africa, and South America. Many people in these areas use Facebook, Instagram and WhatsApp to connect to global economies and discussions. They’re not getting the metaverse.
We’re already finding Cloud Czars stumbling under the load of cloud gaming, which is a first step toward the metaverse. For example, Google’s Stadia is quietly going away.
The new buzzword is the Cloudless Cloud, and smaller, “edge” data centers closer to customers for high bandwidth, low latency applications.
FB Stock Is Losing Its Fans
Zuckerberg refuses to rent cloud capacity. He has continually ignored government warnings about how the company handles data. The CEO is offering former politician Nick Clegg as “vice-president for global affairs.” That means Clegg is supposed to sell Zuckerberg’s plans. It doesn’t mean he’s making decisions.
For the other Cloud Czars, the problem of too much capacity is solved by renting the excess. Amazon, Microsoft and Google are fighting to host the world’s data. Meta isn’t.
Just supporting other, similar software applications with storage and bandwidth would be enough to please Wall Street. But Zuckerberg won’t do it.
That’s why, even at its current price, analysts are tip-toeing away from FB stock. 11 of 44 analysts tracked by Tipranks are now in the “hold” camp.
The Bottom Line on FB Stock
Meta Platforms can still be saved — but not if Zuckerberg persists in ignoring the danger all around it.
For now, he seems intent on doing just that. He sees his broken product model as a marketing problem. He refuses to let other companies use his data centers. He’s defiant. He controls the board, and he controls the stock.
Mark Zuckerberg is just 37. But history shows Ford fell hard after its initial success. General Motors (NYSE:GM) passed it with a more organized, even bureaucratic approach. Ford himself wound up as an isolationist, out of step with his time.
Without World War II and the more-professional leadership of its founder’s grandson, Henry Ford II, the company may have failed. Meta Platforms still might.
On the date of publication, Dana Blankenhorn held long positions in MSFT, AAPL, GOOGL and AMZN. 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. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.
