On his sixth appearance on the pod, MBI joins me to discuss the most polarizing of the Big Tech companies: Meta Platforms (aka the artist formerly known as Facebook).
Of course, it’s impossible to talk about the company without talking about Mark Zuckerberg, so we try to better understand him and how he thinks about the company he founded when he was 19, and how he compares to other tech founders.
There was a lot to cover, and I think we touched on most of the big things: Facebook, Messenger, WhatsApp, Instagram, Reality Labs (AR/VR), AI (LLaMA, etc), Threads, regulators, competitors, high-variance founders, and even cage matches (😬)…
I hope you have as much fun listening to this conversation as I had recording it! 💚 🥃
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He has 10 posts on the company, but I’m going to highlight 5 of them:
📄 MBI Deep Dives — META Coverage 🔐
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🤖 Raw Machine Transcript 📃
Here’s a raw transcript using the Whisper AI model.
It’s not formatted and speakers are not separated, so it’s not great, but if you’re looking for a specific section, you can do a “find” on the page. It’s better than nothing. Human-corrected transcripts are expensive and few people read them, so for now I’ll stick with machine transcripts:
Liberty: MBI my friend, thank you for joining me on another edition of the MBI and Liberty show. How are you today?
MBI: I'm back Liberty.
Liberty: You're now definitely in the lead, the most recurring guest ever.
MBI: Sounds like I'll remain one for a long time because I'm pretty sure this is not the last time I'm appearing here.
Liberty: Oh, I hope so. You better not quit on me now. That would be terrible.
So listen, we've both written a lot about Big Tech. We've discussed it on the podcast. time we spoke about Microsoft and there was kind of like a sneaky meta episode in there. So maybe that was the prequel to today. But among all of the big tech stuff, I think meta, I'm now liking the name. I used to always think Facebook and met them.
But now looking back, I think it's a good name change.
And among the big tech, I think they're clearly the most polarizing Zuckerberg has been bouncing back and forth between being a hero and a zero in the investing community. I think in the more mainstream view is kind of like consistently controversial, especially with positions.
But it's kind of weird how is public image was shaped so early by the film, the social network. It's not exactly a documentary. It's not exactly a neutral point of view. And that came out in 2010, two years before the IPO. So it's kind of weird for any company and any founder to have their public image so shaped when they were so young. I fully expect that most people out there, if you could MRI their brains and really know what they're thinking. When they think of Zuckerberg, they think of Jesse Eisenberg in that film, they don't think of the real Zuckerberg, most of them have never heard a real long form interview with him or whatever. So anyway, I'll have to say, I think Meta is one of the companies that you know best. I haven't been following them as closely in recent years. I'm just gonna try to keep up with you learn from you.
Full disclosure before we begin at the time of recording in August 2023 is a big position for you. Yes, I don't own it. I bought shares of Facebook in 2017. I looked up in my notes six years ago, time really flies. I ended up selling them not long after, not for like big fundamental reasons, or I didn't think the business was a good business. It was just too much drama for me. I found out that owning the stock was not fun for me. There was always a new scandal and new real or fixed scandal. There was always new, always with the headlines and it wasn't fun. Over time, I've moved away from consumer facing business towards more like boring enterprise B2B stuff. The only thing I would add, Liberty, if anyone has a sleeping problem, existing sleeping problem, they should definitely not own metap platforms. That's not a good stock. It's going to amplify your sleeping problem that you already have. If you already have a sound sleep and you generally sleep well, you may want to take a shot at metap platforms and be aware that your sleep can be interrupted. It's not good for cortisol levels. Yeah. So let's go. But before we begin, I just want to say, I think it's really cool how you've covered the company so well and from both sides. That's pretty rare to see.
Usually when you see someone covering something, it's like, here's the bull case. Here's everything that could go great. Here's how they're amazing. And then they sneak in there somewhere. Well, I may be wrong, right? It could turn out that X is not true. And then they go back to being super bullish. Your format of looking at metas mode and metas Achilles eel was very interesting. I hope you kind of keep doing that. I know you can do it for every company. It's a long project every time, but I like the format. Though I gotta say that even on the Achilles heel one, you still sounded pretty positive on the company, which makes sense 'cause you own it. - Absolutely, yes. - If one was more convincing than the other, maybe you should be shorting it. But anyway, let's look at the company. They own a ton of things, which is interesting because a lot of normal people don't realize it. You hear once in a while, like, I hate Facebook, that's why I'm on Instagram. (laughing) - They have the Facebook blue app, they have WhatsApp, Instagram, which has Reels now, Messenger, there's the VR stuff, which used to be Oculus, there's a bunch of Metaverse stuff, they're doing AI stuff, now there's threads, so much is happening. But the big question to get us started, I think, is what do you think people misunderstand about Meta? - I think for every big tech company, I mean, they are big techs, so they cover a very wide surface. It's not a very narrow surface that each of these companies cover. Meta is also the same, like as you mentioned, they own four of the largest social apps in the world. And I think what's misunderstood about Meta platforms, there are probably three big things. The first is the product itself. One of the difficulties of something like Meta platforms is if you just go and talk to investors or like consumers, users, just citizens of the world and ask them, hey, what do you think about TSM? What do you think about Nvidia? What do you think about ASML? Many of them will give you a blank look. What are you talking about? And many investors, if you are asking investors, they'll just flat out say, hey, I actually don't know what ASML does. I've never looked at it. Now, if you ask the same question about meta platforms, it would be very difficult to find anyone who would tell you, hey, I actually haven't studied meta platforms, so I actually don't have an opinion. Everyone has an opinion on this company, on their products. It is extremely hard to have a beginner's mindset when you are studying meta-black forms. It's very much possible, even if you think, oh, NVIDIA is overvalued, it's a bubble. But when you are starting to study NVIDIA's products and NVIDIA's services, it's more likely that you can have a beginner's mindset. That is very difficult to pull off when it comes to meta-platforms. So I think the product itself is very misunderstood. I'm not even saying I want meta beers. I am saying even meta shareholders. It is a widely misunderstood product. Many shareholders-- again, I'm talking with shareholders-- think meta's product is basically a tobacco-like product. It's addicting. Their job is basically to make you remain a customer or user for year after year. And they think the beers misunderstand a tobacco-like aspect of this product. I think it's anything but a tobacco-like product. It's not a vice stock. No, absolutely not. I strongly disagree with that sentiment. So when I think about Meta's product, it's basically connection. They're connecting the world. And it is extremely tempting to trivialize that. If we invent today a flying car, I guess a famous quote by Peter Thiel, we were promised fine-carbon oligotic 140-character Twitter, it's tempting to trivialize such technology which allows everyone in the world to connect, to interact, to exchange ideas, thoughts, beliefs. I think what's really misunderstood, how seriously Mark Zuckerberg took that mission. It's widely underappreciated. I am from Bangladesh, and I think people who are sitting in the US, any development market, not just US, but Canada, Europe, it's very easy to miss the impact of meta-platforms or meta-products across the world. Like when I go to Bangladesh and not just in Bangladesh's cities, but Bangladesh's villages, even in villages, people are using meta-products. Imagine building a product sitting on Silicon Valley that will be used by almost illiterate people in Bangladesh in Africa. You cannot do that unless you are truly, truly, truly, truly serious about your mission. And those villagers are probably not profitable in traditional sense. They probably watch a lot of videos and reels, and they probably spend a lot of time doing that, and they don't have any purchasing capacity. The ad targeting for Bangladeshi villagers is probably not a huge market. Exactly. Metabagprom is basically the only company in the history of capitalism, and I mean it seriously, which truly built global products in its true sense. Everybody talks about this, "Oh, we want to democratize this and that and all that." I think Meta is the number one company who truly and seriously took this mission. Google is the second one. For you to use Google Search, you have to be literate. You have to have some sort of... And like you are looking for information, you are looking for data or something. You need certain level of education to be a frequent user of Google Search. Like YouTube is probably... Yeah, YouTube is an enormous reach. I would say YouTube is probably getting there as well. Again, Google and Meta, I think those both these two companies are the only companies I would say in the history of capitalism, which have gone far and beyond to make sure everyone in this world with internet connection has access to their product. Even Meta went beyond internet connection in some places that created his own controversy. I'm pretty sure we'll get some of those controversies. But that's how seriously they took this mission. And when Zuckerberg wrote in his first letter to shareholders, like Facebook was not supposed to be a company, it's basically a social connection machine that he's building, he meant it. People don't take many of his words seriously. And maybe, you know, even for metaverse, people are doing that in some cases. So that's the first thing that's misunderstood the product. Zuckerberg truly cares about connecting the world. Nobody cares as much as meta-platform does, at least not yet. What marvels me personally is the ability for metapackrons to build a product that is used by Silicon Valley executives and also the Bangladesh The usability. I know a lot of people mock metas products like, oh, it's not cool. Like Facebook is dead, all sorts of things. And people underestimate how difficult it is to build such a global four billion monthly monthly active users product that will be used by people regardless of education, race, ethnicity, and all sorts of political religious beliefs, it's extremely hard to do. - It may be a strange analogy, but it kind of made me think of how it's like the software version of Coca-Cola. It's the same product everywhere in the world. The president drinks the same Coke as a bomb on the street or a villager in a faraway country. It's not quite the same, but it reminds me a little bit of that type of homogeneity around the world. Exactly. That's the first thing. The product itself is somewhat misunderstood by all stakeholders, not all investors, but users, politicians, regulators. One could criticize Metapack Farm that they never really took a missionary approach in making sure people understand what their product is. I feel like if Steve Jobs were running Metapack Farms, people would have a much deeper understanding of this mission. They totally lost control of their narrative a long time ago, and they haven't been very good at getting it back. So they're an easy target because even like senators, they don't even know I'm at a mixed money. There's the famous exchange where Zuckerberg had to explain that they have ads on the platform. And I think the second thing that's misunderstood is how good Mark Zuckerberg has been so far. It's even funny to mention that these misunderstood are not appreciated, especially when a company is like almost like what, $800 billion enterprise value. It's always tricky to understand the consensus view because even if like 60, 70% people are completely off base about a company, it may not matter if the 30% who have all the capital understand the company. It's always a tricky thing to contextualize. The thing that I'm trying to mention is, made a platform, If you look at history, its operating performance has been unparalleled. If you just, you know, casually glancing through people's opinions on Twitter or on different forums, I almost like it. I have to double check, are they talking about the same company or is it a different company? Because the numbers that I see is completely different from the tone people use when they talk about Mark Zuckerberg or like made-up platforms. I want to emphasize this aspect. I'm pretty sure we have all met 19-year-olds in our lives. When you meet a 19-year-old, imagine Mark Zuckerberg. That's how old he was at that time when he founded Facebook. From that moment and the age of 19, at the end of 2021, he went from zero to $95 billion gross profit and 45 billion operating profit. No other company in history went from 0 to 95 billion in 17 years or 0 to 45 billion in 17 years, zero companies. It's easy to start the next Facebook. If you want to build an app, it's not hard to do. It's hard to scale, but also not impossible to scale, especially because now that we have App Store and everyone has a mobile phone, if you can create enough momentum and you have enough capital, raise capital, it's not impossible to scale. What is almost, at least so far, seems impossible to do is to make your social app durable. And that was the BRKs from the day one of Facebook. Yes, you can let your school, it's funky, it's growing really fast, but it can't really be durable. 10 years, 20 years from now, will people still use the product Facebook? I think what's misunderstood is what Facebook was in 2005, 2010, 2015 and 2020, they're very different products in many different ways. There is an evolution going on internally in that product itself. It's not the same product. Like if I told you in 2015 that, hey, in 2022, the two most dominant formats of social consumer apps would be stories and short-form video. If that's the information I gave you, you would look at Meta's family of apps and you'd say, "Oh, Meta doesn't have stories. Meta doesn't have short-form video today. How are these apps going to be relevant in 2022 if they don't have the most prominent and dominant formats in social apps?" And you would be wrong in betting against that. So I think people underestimate how much this is a management bet and not an existing business bet. I'm totally fine if someone says, "Oh, I don't want to own such a business." That's totally perfectly fine and normal. But if you go on and say, "Oh, not only I don't want to own this business, but I'm also relatively confident that they are going to fail," well, you would be wrong for the last 20 years. I love the way you put it in one of your writings where you say like, network effect is a powerful thing, but a network effect is not something that you have to solve once. You have to keep solving it again and again. And your competitors can also have network effect working in their favor. And so it's like a double edged sword where the speed and quality of your execution will matter a lot more than just like, I scaled once and now I can rest on my laurels, than just let the network effect protect me forever. It's not like that at all. That's where I feel like the missionary approach really works. Like if you truly believe the best mission that you have, you have to connect the world. And again, like from zero to 50 million, it's tough. If you want to build an app from zero to 100 million daily active users, it's not easy, but doable, many people have done it. There are four or five, seven, eight, probably companies who have done it. From 100 million to one billion, then there will be like two or three. And that's the part, another part that I think people miss. Even if there's a 1 billion MAU out there tomorrow, like in UF. That's still like 25% of meta's current MAU. It's not going to be like in five days they're going to reach 1 billion MAU. They will have plenty of time for meta to reiterate and basically figure out how that new format can work in their existing apps. Time and again, Zuckerberg has shown his ability to take pain, his capacity to software. It's almost unmatched in all the Big Tech land because none of the Big Tech is currently run by founders anymore. Shareholders are going to come after you even if they don't have much of a say because of the size of these Big Tech companies. But I would say it's still like Zuckerberg's capacity to suffer is probably unappreciated. But I think that's definitely a key reason because when you are starting Big Tech, when you're starting Meta Black firms today, and analysts or investors looking at, they're starting from 10K, which is perfectly fine, understandable. I would argue, yes, go ahead and study the 10Qs, the earnings transcripts, but definitely take the time to actually study Zachary Bird's life history. I feel like that's just as important, if not more important. How he thinks about the world, how he thinks about his business, how he thinks about risk, those are probably more relevant because what business you are looking at today in 2023 is probably going to be different in in 2028, like, you know, the farmers will be different. It's possible that the way they make money, they have to evolve to some extent. It already has a lot. It already has a lot. Think about how many transitions they have to go through the mobile transition, the re-use, the stories, AI, like also the metaverse that's currently going on, which is enormously controversial, probably for right reasons. It's like, you know, you really have to have a good grasp on Zuckerberg if you want to be long term shareholder, because the business model will probably evolve to an extent. So the underappreciative thing is basically how much you think Zachary Breck has the ability to evolve and make sure that the business remains relevant in size over time. I will have to admit that's less analyzable. It's not quantifying factors, qualitative. That's the point I'm making. At any point of time, if we met in 2005, and if I asked you to take a bet on Facebook for the next 10 years, you could credibly be skeptical in every five interim years, every five years. You could be skeptical. So that's why I mentioned I am absolutely fine with investors, with people, analysts who say they don't want to own Facebook or Meta. Perfectly fine. I get it. But usually people go an extra mile. They want to bet against it in the sense not like shorting, but they say it. Oh, they're going to fail. That's probably a line too far for me, personally. But I totally get why people may not want to invest in meta platforms. But saying that they will fail because they don't have these or that, there's not much of an evidence for that. It's been a popular company to dislike. People who were not paying attention at the time underestimate how big some of the changes that they went through were. just a mobile transition. Now it sounds totally obvious, right? Oh, the world went from desktops to mobile. But at the time, Facebook was a desktop website, basically. The whole stack, everything was built for that format. And as the format changed, a lot of the companies that were doing great on mobile were mobile native companies. There was a new crop of companies that were succeeding, and many of the old ones had a lot of trouble. Even Google, people were skeptical like, oh, on mobile, the screen is so small, you can't see many search results. Are you gonna fit the ads in theirs? Are people gonna search on their phones or like typing on that glass keyboard? It's so awkward, right? At the time, people always complained about the keyboards. Are you gonna search for stuff? There were all these questions that now seem obvious, looking back, but at the time, it was big deal. Even another big evolution, I love how you described it because I always felt it, but I love the words that you use. And I think maybe they were not your words, But the evolution from social media to media social, where for a long time people went in there just to see, oh, friends and families and baby photos and what's my crazy uncle saying and all that type of stuff. And over time, the feed, which the feed itself was a big change that people disliked. But over time, it's a lot more, as you put it, they're agnostic about the source of content. And a lot of it is coming from big media companies or from big creators and all types of stuff. Your direct social circle is not nearly as influential it once was. And if you had described that to someone at the time like, Oh, yeah, the stuff that people do all day on Facebook and whatever 2007, they're not going to care about that 10 years from now that much. What's that going to do to the company? Yeah, it sounds scary. Even the TikTok challenge, which we can talk about more later, maybe that's the big change from like, really social network to just a platform with the links don't matter. I'll admit, it was scary for me personally as a shareholder whether Meta will be able to adapt. It's so trivialized. I already have started seeing people thinking, "Oh, yeah, Unreal was supposed to be popular. Unreal was supposed to be successful." There was no guarantee that it was Reels who would be second in short from video race so far and not shorts, not YouTube shorts. There was no guarantee. People tend to trivialize Meta's achievements and amplify their failures. To an extent, again, both true, people understand these are successes, but they trivialize it. And I'm not saying they don't have failures or their failures are mischaracterized, they have failures, but those failures are amplified. So it creates a weird dynamics. Your successes are suppressed, and your failures are extrapolated to a degree that creates a distorted image of the company itself. you own a stock as an investor, you get paid for something. If all the metrics were wonderful, everybody loved it, and people loved you at cocktail parties for talking about it, the price would probably be pretty high. I feel like with Meta, even if you don't consider it a vice stock, I think for a lot of people at various times, not always, sometimes people get super bullish about it, but at various times, people can consider an uncool kind of vice stock, and that's probably impacting the valuation. big moment in the company's history, which was scary at the time, probably for investors, is when Google decided to go all in, tag them with Google+ in 2011. And at the time, Google was a much bigger company than Meta. At the time, Google was a much cooler company than it is now. Now, Google is kind of like how Microsoft was 10, 15 years ago, right? It's really big. It's still good. It's still like doing good stuff, but it's a bit more bureaucratic, a bit more established in incumbent. But in 2011, Google was really, really cool, really innovative. And now the founders were in charge of the time, say we're betting the company on social, every one of our app, every one of our platforms, everything at the company now as KPIs based on social, everything's going to be integrated into Google Plus. I don't know how many users the other time, but they probably are already at like a billion users, and they could promote Google Plus in the Google front page, they could integrated everybody's existing Gmail. It was basically the biggest competitor that you could possibly imagine for Facebook. And the fact that they survived that, but not only that, but that Google kind of had to give up and that Google will say, we've learned a bunch of stuff we've kept up. It was good for Google probably to try. But that Google went out and still failed kind of shows how Facebook's at the time and met us execution was really good. One thing that I would like to add there, how was Zuckerberg when this company with all its might and resource came after Facebook. How old is it? Yeah, like 24, 25 probably. Twenty-seven, I think. So that's the thing. Imagine the 27-year-olds were defending their turf against a big tech. And like you were mentioning, they came after him seriously, not in half-hearted measure, not in half-hearted effort. The other thing that I wanted to mention that people kind of underappreciate about Meta is investors seem to be obsessed with near-term earnings next 12 months. Increasingly, it seems like next 12 months is like a long term to most people. And I am of the opinion that Meta's next 12 months is always hard to predict. It's not a very predictable company. And again, that's why I feel like it's totally understandable to me why people may not want to own a company like Meta platforms. Totally understandable to me. But it's not a very predictable company if you're trying to forecast on a next 12-month basis. Because all I know, right now, I think, analysts are expecting something like $52 billion in 2024. What happens if EU comes out and basically says, "You can't do behavioral advertising anymore. You can't even put your content-based algorithm anymore. It's going to be a dumb, chronological algorithm. That's it. That's a possibility." Oh, with the EU for sure. They don't care. That's not a 20% probability. It's probably 60-70% probability at this point, frankly speaking. These are big questions. I'm not here to claim I have very clear answers to these questions. It can be always tricky to forecast. When meta was down, I like a lot in 2022 when I took 100 or something. In 2017, if you looked at analyst estimates for meta for the next five years. If you look at that estimates, and if you look at Metas actual performance in aggregate, so 2072, 2022, total revenue, 2072, 2022, total free cash flow, Metas total aggregated revenue was 50 billion higher and total aggregate free cash flow was 40 billion higher than Adalnes estimates in 2017. So as an investor, that's the way I'm making. I'm saying over a five, 10 year period, what you are basically underwriting is vastly underestimated for merit. Even though I can't claim to have special knowledge about next 12 months earnings, or how that would vary, it may be drastically lower than what analysts are expecting, it may be a little bit higher, but that's not the bet. There's also on one side, there are some bets that Zuckerberg himself is making that investors may not like some of the reality lab stuff. It's his company. Oh, totally. That's something you have to sign up for. We are just riding riding along. We are just going along with we think in this journey, but it is his company. We don't really have a say. Exactly. And so investors are kind of like, well, is he going to wake up this year and wanting to adjust 20 billion in reality labs? Or is it going to be the year of efficiency? And he's going to change that. But at least that part is under his control. I like the fact that it's he say, it's his company. If Metaplatform was run by a committee, I'd be the first person to sell my shares because that's the other thing. Social media companies are deceptively simple. It's very easy to delude yourself that, "Oh, it's not that difficult to build." Imagine building a company. You don't know how the next 10 years of social evolution will be, the cultural evolution will be, and be relevant for over 10, 20-year period. It's very hard. It's not a car that you're building. You don't have to change your car radically in 10 years. If Tesla is building a car today, Elon Musk will not have to change the car radically. I think Elon Musk is finding out how hard social media is. Probably. That's something investors probably need to pay attention to, that people trivialize how challenging it is. It's not challenging to build an app. It's not challenging to even build some sort of scale. What's challenging is to make it durable. Yeah, long term. Is this TikTok going to be durable? Is that a particular thing? We don't know that yet. Yes, they definitely found something there. They have a large monthly active user base, but it's 10 years from now. People are still going to watch just short from video on TikTok. I think if that's the case, that's a losing bit. They'll have to go through the revolution. So it is a management bit. That's basically what I am trying to establish here. No matter which which social app company they were looking at, it's all the same, like no company can afford to remain the same. Twitter tried, and we know how they turned out. Twitter, they tried to stay where they were, and it's a very small place if you want to stay where you are. - I'm right there with you where if you have a founder-led company, it's a much higher variance bet, because they won't just follow whatever the MBA is, as Harvard says. A lot of the other management, they kind of all cluster together in decisions because they're trying to kind of hold on as long as possible, is the agent principle problem. They're getting paid so much that whatever stock they own in the company, most of the time, not making waves and keeping the job for a long time is the best way for them to make money, but it's not necessarily the best way for the company to be relevant and do well long term. But when you invest for the long term, most of the time it's money that's taking out of the short term. Your short term result took worse, and so for management, it could be hard for their jobs. - I do want to emphasize one point here. When I'm saying I like the fact that it's his company, It does not mean by any means that I am okay with every single decision that he takes. Definitely, Zuckerberg has taken some very soft optimal decisions, which he himself, you would agree if you ask him. The metaverse bet is a huge question mark. I personally don't think the bet on metaverse is a bad one. What's probably far from optimal is basically the size of the bet. That's where I start getting uncomfortable. That's how usually many of these founder-led companies are, especially with the dual class voting structure. And this size, you have to kind of live with both the things. Metapatforms I personally do not consider is one of those never-sell companies. Definitely at certain valuation, you need to take a hard look. Metapatforms is where it is because of the way Mark Zuckerberg named this company. The comedy decided News Feed was a terrible idea and News Feed is probably after Google search the most profitable format. It's a format innovation. Now it's unthinkable to do almost any of those apps without it. It's literally the most profitable after Google search in the digital world. The comedy basically used to think that it's not a good idea. There are many people who are still making the case for social apps or western social apps optimizing for News Feed was not a good idea. There are obviously trade-offs here. I'm not saying having a newsfeed is a big inertia. It is a trade-off, but you have to take into account the fact that you are arguing against a format that was literally a money printer for this company. - And when I say it's higher variance, a lot of people will hear, oh, it does better, but no, higher variance means sometimes when it goes wrong, it goes much more wrong, right? It's like on both sides. That's one of the parts I think investors have to contend with. There's this higher variance, there's these longer term bests, some of them may work, Some of them may not. But on the other side, I think the part is not under control by the founder, right? Because the founder could say, OK, after all, it was a mistake. Let's stop doing it. And that changes. On the other side, you can wake up one morning and find out that India or Indonesia or some country decides, oh, no, we want our own homegrown social network. We don't want to be dependent on this US company. Oh, something happened. Some big political crisis. And now we want to censor everything. We want to control everything. You could wake up any morning and find out a big piece of the company is basically like gun by buyer. And that's the harder part. That's probably part of what you get paid for this higher uncertainty on that side. At the scale that they are now, they're almost like a government organization in the world. Right? They probably have a lot more lobbying power. They're less vulnerable than if they were tiny in some ways, but they're also a lot more visible than if they were tiny. So I think it cuts both ways. And it could be easy for some politician or something to attack them and oh there's the foreign company kind of like in the EU it's much easier for the EU to have all these regulations and everything because all big tech is in the US but as I recently discussed with someone on Twitter I if only the big tech companies were headquarters in Paris and Berlin and London and all that I think the dynamic would be a lot different and maybe EU citizens would also see more of the trade-offs of all these regulations because it's easy to have nice slogans like oh well we believe in privacy and we want to protect or digital rights and blah, blah, but you don't see all the small businesses that can't reach customers all of a sudden, you don't see a lot of all kinds of jobs throughout the supply chains that get lost. You don't see users of these services having worse versions, degraded versions, not discovering cool content or entertainment or learning stuff, all that stuff is a lot less visible than the slogans. And in many countries, that's one of the dangers for meta platforms that partly because they don't drive the narrative. of that well, they're an easy target. Definitely. That's the challenge for meta platforms. I would say for the last what, almost seven, eight years now, regulators across the world have been trying really hard to make things painful for meta platforms. And all they have accomplished mostly so far is basically increase their mode durability, which is the primary concern for most channel holders. That sounds like a positive thing. I mentioned in meta's modes, write up that regulatory capture is basically one of the modes. What is disconcerting and what is really increasingly uncomfortable as a shareholder is, it seems like they never may stop trying. It could go two ways. Okay, we have tried to hard this company for like last six, seven, eight years. Whatever you've accomplished, almost nothing. People are still using these apps. They're still the dominant social apps. And it sounds like the regulations we are putting in can be harmful for smaller players. And they could say, you know what, we should take a different approach now. That could be one way. Another way is, yeah, it hasn't worked yet. We'll keep trying. Yeah, just do more. Do more. We need to do more. If that's the thing, like the version that I kind of discussed, which is a realistic probability and this possibility at this point, you could have a Facebook or Instagram or any of these apps. And basically all apps where you couldn't really insert algorithm, smart algorithm in these apps. It could be just dumb, chronological. That's it. Ads cannot be targeted. It will be random, very hard to attribute. The internet can look very different. And again, the other thing is basically obviously what Meta would probably try to do, at least in some places, they may try to have a paid version of their apps. This is a big question mark. many people will actually use the paid version. The other thing is, there are many people in the world who actually may not be able to afford them. The Bongosy Village, as I talked about, they are definitely not signing up for the paid Facebook version because they don't have the money to do it. Even if they are using the product for hours, they definitely will not sign up for the paid version. That's the part that's missing. That's the narrative that's missing in this kind of regulatory conversation. What is the cost? What's the trade-off for pursuing these things? And it's funny in a way that short-term video has such popularity. People are literally are willing to put themselves out there, which will be seen by millions, if not hundreds of millions of people. It kind of shows how little people deeply care about privacy. Like if you do a survey, hey, how much do you care about privacy? The answer is obvious. Yes, I do care about privacy. It's a rhetorical question. It's a review preference versus like the stated preference. This is a wide difference. When you look at the review preference, how come start from video is so popular? How come people are sharing all their, you know, so many moments in their daily life with the world? But to be fair, it's the expectation, right? When you do press publish, you feel like you have control and you know it's going to be public. I think people are scared of, is there something nefarious in the background, right? Some stuff that I don't decide to make public ends up in some database. That's the narrative that Facebook could do a lot better to control. And part of their problem is that they haven't always been so good with it. 10 years ago or whatever, they were buying these VPN ads and like tracking a bunch of teenagers, and they've been a lot looser with a lot of privacy stuff, which there's inertia in the perception of the company. I think they got much better in recent years. And a lot of the problem is coming from like a bunch of days, these third party ad network that do all kinds of crazy tracking and selling data and Facebook doesn't do it. But because they have that reputation that that has been following them for so long, it's been hard to shape, basically. - I really want to explicitly mention this. I actually appreciate most of Facebook's are made of critics. Why? Because it's simple, like I'm a shareholder, I will never be very motivated to come out and say the ills of Facebook that's exerting on society. It's unlikely, I will probably not even understand because of the biases that may involve in my psyche just because I own the shares. I think it's very important that there are people out there who are willing to, and not just Facebook, it's all big tech. These are extremely large companies. As you say, they're probably more powerful than most states, most countries out there. As a society, we should be alert. What these people are doing, how they're doing, we cannot just assume innocence of these companies by default. And I own a lot of big tech companies. I would not be personally deeply motivated to find the social consequences for these companies. I'm only going to be confined, largely speaking, to the numbers, to what the long-term future of this company on numbers. It's not a very wide lens. It's a narrow lens in some sense. So I do want to mention that I appreciate that people exist. And for example, what happened in Myanmar, that's something that's easy to miss. I do think this is a negative externality of big tech companies that may get accentuated over time even more. So, these companies are very, very careful with how they deal things in the US because US media, the press, is here. They are very careful. They are willing to go above and beyond to make sure they're not breaking the rules. And even the Cambridge Analytica stuff, this is all completely overblown. If you look at actually what happened, which I'm not going to repeat in this podcast, this kind of five, six years ago, I still thought to people who think Cambridge Analytic was some big scandal. Like it was a very minor scandal when all things are considered. The Myanmar one was, in my opinion, was a much bigger scandal with much larger repercussions. But unfortunately, Myanmar doesn't have the kind of apparatus to take that spotlight. And that's the consequence of many of these big tech companies, that these companies' These products are being used everywhere, which I mentioned is to be mostly positive thing, but they are negative of stuff as well. There is no doubt that when you are importing the society in the digital world, you're importing the problems as well. And no company can have the eye of Sauron, cannot be everywhere at once. They can't pay as much attention. And there's also language barriers, cultural barriers. That's exactly what happened. You can hire people everywhere. Let's say Bangladesh, the Bangladesh villages are trying to create some sort of riot or some sort of negative thing and you don't have people who actually understand that local dialect. And again, like they may not even, like even for example, there are areas in Bangladesh I would not be able to actually understand what they're talking about because it's a very local dialect. It's also Bengali, which is my mother tongue, but it's like not totally understandable for me. Similar in India, right? There are how many dialects in the country? That's hard to keep track of. Oh, India is just even more diverse, even more heterogeneous, incredibly heterogeneous country. So that's the challenge. Sometimes I think these companies, especially like Facebook, in particular, if they try to over-optimize for profitability, they will cut down on those. They probably should have a huge moderator network and apparatus in all possible dialects, in all possible corners, nodes, and that can have just all the nooks and trannies of the world. It's a huge network, huge apparatus that they need. AI can help probably with English and some major languages, but not probably with all the possible dialects that's out there in the world. It's just huge undertaking. I appreciate the journalists, critics who are taking the time to shine light on these shortcomings because investors are never going to do that. Neither the beers, not the bulls. They're usually not concerned about the social consequences. But if you ignore social consequences for years, it will come back to bite you eventually. Some of it already did. If Facebook today tries to tell a different narrative and frankly speaking, a more right narrative than the regulators are saying, who decides what's the right narrative? It's the people. And if the people don't trust you, then it doesn't matter whether you're telling the right narrative, almost. I want to go back to two things you said one. I have an anecdote about how you know mentioned as a shareholder It's harder you value the critics because you see it when I briefly owned shares of Facebook in 2017 I wasn't a big user of the product before but I was looking at the numbers. I was looking learning about Zuckerberg I was like, oh it's kind of a digital ad duopoly with Google I I was seeing tons of great stuff and so when I became a shareholder, I started using the product more I went into the blue app and I unfollowed a bunch of crap I added a bunch of interesting sources. I was like, well, this is pretty good after all, right? Well, I was missing something. It's good. It's good. And then when I sold my shares, I kind of stopped using it. I went back. And so I was fooling myself. I was trying to convince myself, it's the fine man thing, right? You're the easiest person to fool. It's so powerful, this bias when you own something, when you're shorting something, all that stuff. So listening to the critics for shareholder of any company, I think is very important. And best case scenario, you disagree with them and you know why, but you have to be aware of what's going on. There is an inherent tendency to think the bias itself is a negative connotation with bias. I personally think bias is everywhere, whether you are long, short, neutral. Yeah, there's no unbiased. There is no escape from it. But the only difference that I see is our lenses will be different. So I'll have some truth, you'll have some truth, and the other person will have some truth. None of us has a monopoly on truth. We don't have monopoly on truth. None of us are going to be able to see things as they are. It's a difficult job to do. The best I personally can do is basically make sure I hear you, I learn from you. I may not agree or I may think he's amplifying the negative stuff too much. It's probably not as consequential. That is a different thing and I and I can still be wrong. But bias is everywhere. There is no escape from that. The way I think about it is more calibration. And calibration is a direction, not a destination. Absolutely, exactly. And so you can be better calibrated. You get kind of closer and closer to whatever reality is. And reality probably changes in the meantime. And you have to keep following it and updating and like Bayesian priors and all that. But listening to both sides can help you be better calibrated probably than if you only read confirmation bias, super bullish stuff, like you have more chances of being miscalibrated in one direction. The other thing I want to get back on is about regulators. So I think there's two ways of looking at it. There's one way which is more good faith. It's like, okay, it's a bunch of politicians, politicians will do the stuff that they think will get them votes. And so if population doesn't like Facebook, it's a very easy target. And regulators, they attack it and also they get the sound bites in the news, they get better approval ratings. Politicians and the people feel that they're kind of like on the same side on that thing. That's the good fit argument. And so you could think you could change that with a better narrative and acting even better going above and beyond and change that over time. The other side that you could look at it is more cynical. A bunch of regulators are looking at these big tech companies as big piggy banks basically. And so just in Canada recently, meta has announced that they would stop showing news, any news on its platforms in Canada, because the country kind of maybe overplayed its end and they said, every time you link to something, you have to pay these companies for the news that you're providing. It's ridiculous. It's kind of backwards. Australia did a similar thing where basically Rupert Murdoch lobbied and got a bunch of money. These platforms are driving a ton of traffic to news organizations. And yes, the internet has wrecked the old model, which was a lot based on distribution, having trucks and printing presses and local monopolies. So the internet has ruined that. Facebook could disappear today and you would not go back to the old model, right? the internet is here to stay. So in that internet model, what these companies should want is someone that drives traffic to them that helps their message get out there basically distribution for them. You could almost imagine that news organization would pay a company like Facebook and Google to get the message out. But somehow, the politicians are like, well, why'd you rob the bank? That's where the money is. So that's the more cynical approach regulation, which, if you believe that, they're probably never going to stop. As long as there's money there. There's going to be a big EU fine for Google and Facebook every year or two and it's kind of a price of doing business. I probably agree with both those stakes. It's a bit depressing, but it's a bit depressing. These are public companies, anybody can see their profits and cash flows. And who's going to defend them right now? In the US, they're US companies, a lot of the employee base is there. And the US has a very different dynamic. But if to you, it's just a foreign company at the other end of the world. And now the EU is doing that. But like, is Indonesia going to do that? Is Japan going to do that? I could see how if it keeps going for a while, like there's more dominoes that could fall there. And I don't know where it ends, but it's an uncomfortable position to be in. It certainly is uncomfortable. And that's why I kept mentioning, I totally understand why people may not want to own such companies. And again, it's not just meta. It's also Google, Google is probably less exposed, but only relatively speaking. And it doesn't mean that they are going to be immune. And I would even argue in a long enough time frame, especially if they are successful in hurting Google and Meta, to the extent that Piggy Bank is not there anymore, the jar is empty. Like, for example, Meta makes, let's say, I'm just making a number, let's say $2 billion profit in EU, and EU makes sure over a five-year period they get $10 billion. So it's basically nothing. They make nothing from EU. Over time, it may not make sense to do business there anymore. I don't know what will happen, but what I'm trying to say is once they are done, in some sense, with Google and Meta, maybe the next ones will be Amazon and Microsoft, because they're looking for the source of cache. How can we kind of get it? As you said, this is a more cynical view. And if that view is closer to the truth, then it's going to be an ongoing thing. They will say, they will see that Microsoft is making 40, 50% operating margin in all their segments. So maybe they will not be allowed to increase prices anymore. - Cache doesn't stop being attractive. - Yeah. So, like, no, we don't need AI anymore. We don't need those AI tools, the copylotes anymore, you can't raise prices going forward. Who knows? It doesn't have to make sense. But yeah, I agree. I think Microsoft is the least vulnerable here when it comes to regulation. I guess Apple could be. You mean this vulnerable or? It could be vulnerable, right? A lot of the app store stuff, that's some of the next regulatory problems that I'm foreseeing. Apple could be vulnerable, Amazon could be vulnerable. Like, they can just say the 3P stuff doesn't go like you have to choose either 1P or 3P doesn't have to make sense because Walmart does it, reach other does it, it doesn't have to make sense. They can just make up rules. I think Amazon is definitely not immune. Apple can be viable. One thing I want to discuss, we've kind of discussed in the past podcast about big tech comp is how, I love how you describe it, you describe it as the raw materials to sustain the monopoly for, and monopoly and footmarks for meta is the human capital. And because they're so profitable, they can pay a lot for engineers and they kind of set the market price for engineers along with Google and some of the other very profitable companies. And it makes it very, very hard for like new entrants or startups or others to compete because they can't afford all that human capital, even if maybe they're kind of like just stockpiling it in a corner and that it's not that productive all the time, but they were kind of hoarding all the human capital. I think that that's an interesting dynamic. I'm curious your take on it. Whenever I am studying a company that's been around for decades, I tend to think more like in time travel perspective, like, "Okay, let's travel to 2013 and see how things were, and what would I potentially miss? What would I underestimate? What would I overestimate?" And I try to imagine this kind of time travels for all the companies I'm studying if they're around for like decades. If they're only been around for like five years, obviously, they can't do that. But let's say if we go back to 2013, so in 2013, there was no Instagram, there was no AWS, there was no Azure, there was no Google Cloud, YouTube was small. So think about all these kind of, you know, pervasive products I just mentioned today. We all know it. It's just 10 years. It's not that long ago, 10 years. Internet time, it's like 50 years. Right. And in 2013, all of these companies are public. all of the investors are looking at these companies, and what would they miss? They would miss this. They would miss that all these big new products and services are going to be launched and widely adopted over the next 10 years. Now, the question is, how did this happen? How do you think these products were developed, launched, and widely adopted? I do think Big Tech's ability to hire the highest quality of human capital is underappreciated. You can hire the best engineer one or two, but as a group, if you think about their collective intelligence, these artists are basically super intelligent beings. We already have basically a super AI. We just don't really recognize it yet. It's basically these big tech companies. And the harder thing is, and I totally disagree with investors, would think I could have run Google Search better. There is no doubt in my mind that if I ran Google Search, Google Search would be out of business in a couple of years. I definitely do not think that anyone could run Google, anyone could run Facebook. These are extremely complex. It's not a ham sandwich business, as Buffett would say, right? No. You are managing some of the most talented people in the world. Think about how hard it is to manage any talent, even the subpart talent. Now think about you are managing the most talented group from all over the world. It's a very hard job. It's not an easy job. Yes, they have a cash printer, but the ability to hire, recruit, manage, and give them intellectually stimulating jobs, It's hard. It's not easy. Basically, apart from Amazon, everyone, this is basically the famous Peter Thiel argument. Everyone else has run out of ideas. That's why the buyback shares, they keep cash on their balance sheet because they don't know what to do with this cash. The fact that they were able to attract this talent, and that's the raw material. Why is AWS the market leader? There was no inherent mode in this business. Microsoft should be able to, the team moved faster? How did they move faster? It's because the top management basically saw the future and basically pursued it with intent. And how did he execute his plans? How did basically execute his plans? He basically hired a bunch of talented people from the market. Same thing with meta platforms, Alphabet, Microsoft. It's the same thing. They are hiring people from all over the world. They're literally probably one of the highest quality talent pool that one has ever seen that these companies have assembled. These other small tech companies, they have to match their salaries. Otherwise, why even if they don't, they have to give them the prospect in terms of stock options, all sorts of things. But it's very hard to scale. You can hire probably a few like that, but how do you really compete against these talent pooling aggregate? That's why my personal opinion is there will never be another Google search. There will never be another social app that as we see. It's going to be different. If Google search fails, it's because we don't search anymore. We do something else. We probably chat or whatever. We don't know. It's really hard to see the future that far out. If Facebook fails, it's not because there is other social media app. It's because we interact with the world differently. It's very hard to kind of verbalize because it's not there yet, But we'll probably see at some point. So these people are on their toes so that it never happens. And that's why they kind of hired these raw materials from all over the world to make sure everyone is thinking what's the next big thing. All the big, big things that have happened over the last 10 years, why did it only come from mostly these companies? That's the thing, so that it did change. But 10, 15 years ago, a lot of these next big things, they also acquired very well. the acquire you to instagram was in the position what's up was in the position and i'm not one of those people who says i just acquired it so they don't get any credit for it. Most of the growth of these things was under the new management and with the help of the new infrastructure and the new talent and all that is the add the right seat of the thing right the idea but if you to an instagram stayed independent companies. maybe they would be great, maybe they would have done really well, but they would not be what they are today. And plugging a good idea into an existing big distribution network really helps it. It's rocket fuel for it. If you plug Twitter inside of Meta, just the ad infrastructure and everything would overnight make Twitter much more profitable. And so a lot of that has happened. Now they can't really acquire. Meta can't even acquire like a GIF company anymore. So this has changed. They still hire a ton of smart people. they may have trouble taking out because I would say that WhatsApp for example was a largely defensive acquisition. It's a great company, they can do a lot with it, but what they saw was a super fast growing messaging network that could be bootstrapped into a larger social network. If WhatsApp had stayed independent and they were like well let's add a profile page, let's add some news in there, let's add a feed, maybe WhatsApp would have copied a bunch of stuff from Facebook and then they could have had a scaled competitor. So it was a great defensive move to take it out, but the next one they may not be able to. Maybe it's not as dangerous now because of all the regulation and everything is harder for new entrants. You need tens of thousands of moderators and you need to deal with bureaucracies around the world and all of that makes it very hard for a startup to get there. Even Snapchat is pretty big but they kind of subscale in many ways. Yeah, in today's standard they are subscale and yeah look like there are probably five, ten reasons why these companies have been successful. I basically mentioned human human capital to be one of the relatively underappreciated factors. It's definitely not the only one. The distribution is probably the biggest one, which I think is kind of understood that distribution is a huge advantage for some of these big tech companies. But I think people tend to gloss over the human capital aspect. But yes, I totally agree the next big thing will not be able to be acquired by meta platforms. I think that's definitely totally off-limits. Even if they did not acquire WhatsApp, they would still have Messenger. Their talent at fast copying, which is kind of similar to Microsoft's talent at fast copying or following or depending on how you want to frame it, is very, very powerful. Microsoft is seeing Slack over there, and they're building teams. But they have the distribution, and so they crush teams. I think Meta has done a lot of the same with Stories and Reels, not necessarily crushing the competition, but capping their growth and making a lot of people unmet not even wanting to go check out the other thing in the first place. - For WhatsApp, I think it's kind of important to contextualize. It's been what, seven years, I think? Seven, eight years, if not more. - I think it was 2013. - Yeah, so 10 years almost. So it's maybe 10, maybe less than 10 years. I think they are probably making like one and a half, two billion dollar revenue run rate. Probably not profitable yet. This is within meta. So think about if they are without meta, it's probably fair to say they would probably, they may not have been able to make even $2 billion revenue. - It depends how they would have changed the product though. If they had changed the product into a kind of more full featured competitor, maybe, but maybe not. Maybe it would have crashed and burned. - We cannot run the counterfactual. So there's always shortcomings here. And the Messenger app, so they said trick to messaging ads is basically $10 billion revenue business for meta. So if one and a half billion for WhatsApp, so the rest is probably Messenger, I would argue even without WhatsApp, WhatsApp is an important property, let me be very clear, but even without WhatsApp, meta may not be seriously impaired because they do have, like they would have Instagram, they would have Messenger. These are very important properties and WhatsApp obviously, again, again, the question of human capital, wouldn't WhatsApp be able to hire as much talent as men apart from D? Because it would be unlikely. And even then, their revenue is like one and a half to, you could say, maybe meta waited too long, they played too safe to kind of amp it up on the revenue, kind of monetize it. But yeah, it's very hard to kind of ground the counterfactuals, even for Instagram, very hard to around the counterfactual and basically say with huge conviction, whose credit is this? Like even I think Instagram co-founders mentioned, it's probably both. Yeah, it would be cool to see how they do with artifacts if they do it really well That would be extra credence with the people who basically say Instagram would have sex been successful Anyway, we're doing without meta platforms another interesting aspect of meta And I think they've been doing really well there in a more applied way is AI and is a bit more like Apple in a way Apple doesn't talk a lot about AI and they're not known for it But a lot of their products use it and are better because of it every day And I feel like Meta is a little bit more like that. They've started releasing more stuff in the open source and Lama too, and all that. They're getting more spotlight now. And it's a clever way for them to commoditize our compliments because the infrastructure can be improved and standardized on and kind of like PyTorch versus TensorFlow and all that. But the real secret sauce is not that, it's the actual network, the actual data. Anyway, but back to AI, I'm impressed by how much better they've done after Apple's app tracking transparency changes There's an idea for change in the lab and it totally destroyed a lot of other businesses and it hurt Facebook a lot and meta a lot for a while, but they pulled out of it much faster than others. That's been impressive. I'm also impressed by how they want to use it for generative AI to generate some of the ad, some of the ad campaigns, do A/B testing, all that stuff feels like it could be very, very positive for them. And it's not as on the radar as the metaverse stuff or whatever, but could be a big thing. I would like to go back to 2013. I think it's the second quarter earnings call where Zuckerberg clearly mentioned they have hired Yang Lekan to lead their AI team 10 years ago. So Meta has been at it for a long time. Again, like 10 years ago, he was just what, 29 years old. So to be able to foresee that it is such a huge force and to go out and basically hire one of the most prominent AI researchers out there, it goes to show that he is a visionary. Even though I mostly disagree with how he's kind of betting the metaverse thing, I would love to tone down a little when I talk about metaverse, because I have seen all the bits he has made and how things have played out. So I'm almost willing to tone it down. Even when I criticize-- You want him to tone down how he talks about it, or you want to give him the benefit of the doubt on your side? Yes, benefit of the doubt. I'm still going to criticize, but with the acknowledgement that this guy has made some kind of strange bets and he has been often right. Not always right, but he has been often right. The base rate is pretty good. And even for, I don't know, maybe we'll get into metaverse a bit later, but I think on this topic, what people really misunderstand about Metaverse is the surface area of their attack on that kind of innovation. People usually talk about the VR, the cartoon stuff that people kind of mock. It's such a small bet. It can totally fail. And we would soon not be able to say that the AR/VR attempt is a total failure for Meta. They are spending like almost half of their R&D on AR glasses. Now, the tricky thing is it could be a total zero. Maybe the AR glasses is just non-viable thing, especially in the form factor that people mostly imagine that it can replace smartphone. You can just wear it and you can go out. That may never arrive. Yeah, the physics of it are very difficult. Exactly. It's the question of physics. So it is a realistic probability that made us All of these capex on AR could be a zero. That is a possibility. And if it's a zero, then my guess is it's no-- it wouldn't take like 20 years time to realize it's a zero. It's probably take four or five years. If you are a founder of a company, you don't want to give up too easily. That's the worst thing. You give up, and then Apple figures it out, and then you have to kind of get back to it again. That's like the worst case scenario. So I think he's going to be more patient than most investors would like. But it can be a zero. That is a realistic probability. In fact, if you ask me to give you a probability, I think it's more likely to be a zero. It can come up with products, but it's just not going to replace a smartphone thing. It's just going to be a cool thing, a very niche product. I'm saying zero, like in a rhetorical sense, but they call this close to zero. A low return on all the capital invested and maybe the less visionary but more arrow I see approach would have been to wait for this technology to be more mature for others to invent it and then do more of the fast copying type of stuff but I think he wants to own the platform he doesn't like to be on Apple's platform on other people's platform it's different I don't think they can do fast copying thing here because it's not software oh no but I mean fast copying and that maybe they have partners and suppliers for the parts it's more commodity, but they can integrate it into their distribution and their software world, even if they don't make and invent the whole thing. It wouldn't be as fast as software copying for sure. But there may be like a lower capital intensity way of still being in the metaverse game. I have the opinion that all the next platforms will be very capital intensive. The last platforms were not capital intensive. App Store was not capital intensive. Anything with AI, generative AI and a bunch of GPUs somewhere. It's also about the scale. I think the disruption rate is going to really slow down going forward. People probably miscalibrate how new companies disrupted the old ones during the late 90s or in 2000s. The companies that today's Big Tech were kind of disrupting were not global in scale. The size is just completely different. Today, you could build a billion monthly active user app, and it would still be only 25% of Meta's aggregate network. The scales are just completely different. I think all platforms, all future platforms, are more likely than not to be quite capital intense. When you look at Alexa, you look at the AR/VR stuff, and also even for Apple itself, they're also spending a lot on their AR drivers so they don't disclose. But there are some estimates out there that it's definitely not in a single digit billion. It's tens of billions. It's just a strange reality of like everybody understands now how valuable platforms can be. People don't want to miss the next platform. And also it should ask investors a question in them. So like everybody's annoyed, like, why are they spending so much on Alexa, on like AR, VR and all that. We have track record for these people. They have been at it for a while. They're smart people. They know businesses. They know how to build businesses. They have built businesses and they're doing it. Why? way, there's another way to do it. Why are not they pursuing that? So there are different some constructs. I cannot claim to know all the constraints. I'm just saying when I look at today's kind of big tech landscape and how they're approaching different things, it makes me realize things are very different from what it was 10-15 years ago. It's kind of like Ben Thompson's thesis on the end of the beginning. We got in use to this beginning part where everything is changing so quickly, new big companies pop up and they fall in and now we're in more stable state. And at that scale, one of the reasons why these companies focus on these things is that they're the things that could move the needle for them. Amazon could focus on a tiny billion dollar business, and it's not going to make much of a difference. Now they're buying like cargo planes and ships and they're rebuilding like basically a logistics network of the size of FedEx in a few years. That's the thing that moves the needle for these companies. Meta is probably looking at, okay, a platform would really move the needle for us if there's a new one and we don't own it. We're just as vulnerable as we were to Google and Apple with the previous version. And so I can understand how like even if they invest tens of billions in it, the prize would be hundreds of billions or whatever, if it works. It can also fail. Like that's the uncomfortable reality for a meta. Oh no, you can invest tens of billions and then the platform is owned by Apple or Google at the end anywhere or Microsoft. So Microsoft is kind of like trying to partner bone. But one thing that I'm seeing that a lot of investors or people when they talk about the company seem to look at AI on one side and metaverse on the other. I think both are a lot more linked than they seem. If you want to compelling VR world or even AR world, a lot of the 3d assets in there, if you can generate them with generative AI, that works a lot better than if you need humans, animators and modelers to make all of that. And so I think a lot of the work done on the AI side is basically could help create a bunch of cool content and a cool tools and stuff just for all of the existing social platforms. But if the metaverse stuff takes off and works, that's going to be even more valuable in there, because it's a lot less expensive to do just text or images or even video, which is kind of like the most expensive things right now, then I have to do high quality 3D stuff that's like closer to magic in real time. I feel like AI is going to be quite pervasive in all the products, all the functions that this business is operating, the ads, even the family of apps business, like how you are showing content, how you're using algorithm, all those things will be very AI sort of driven. What sort of reels you are showing to different people is not the same thing to everyone. As you correctly mentioned, even for metaverse, not everyone is an artist. If it's so hard to build in like a 3D world, very few people are going to do it. If it's very simple, like naturally you can just say it and it's just happening automatically, that's much more likely to happen. One thing that I have thought about and one thing that kind of gives me pause when I think about metaverse is it's kind of a persistent, weird case for beta, which I have all seen better before. When I think about, am I going to use Facebook 20 years from now? My answer is obviously we don't know the future. My answer is probably yes. I will probably use Facebook 20 years from now. I have been using it for, I started in 2008, so what, 15 years now? So if I am doing something for 15 years, it's more likely that I'm going to do it for the next 15 years, I guess. It's more Lindy. But how confident am I that my future kids will sign up for Facebook and they will use Facebook? If I have to bet, I would bet they will probably not use Facebook. And if they sign up, they may not be frequent there. By then, even Instagram will be the old social media thing. It's kind of similar evolution that's possible. So it is possible that Meta, again, like all these big tech companies, these are data companies. They have all sorts of data. They have much better clarity about their businesses than we ever will from the outside. So all of the things that I wonder about, maybe meta has looked at the young people data and realized they may never graduate to be a Facebook user or an Instagram may fall. Again, they cannot wait for that to happen. They have to kind of move before that. And one interesting thing is when I went to Meta Horizon, again, it's kind of widely marked. Nobody goes there. It's a dead city. Nobody's there. Nobody's there. And I checked it out probably five times over the last three months, just basically, I have no interest in going there, just to see what's going on there. Almost invariably, it's basically teenagers there. They're chatting, they're kind of playing like a shooting game and all that. And when I asked myself the same question, how confident am I that my kids will not spend time on metaverse? I'm actually not super confident. I think it's more likely that my kids may want to spend more time on this AR, VR stuff than they are going to spend more time on Facebook or Instagram. Maybe they're just moving ahead of that trend. We don't have the data, really. It's interesting that Quest, the headset, is consistently a huge hit in Christmas gift. Who do you give Christmas gift to? It's usually your kids. It's usually young people. So it is possible that if you're meta, your concern should be that you're kind of building a global company. You are trying to make sure everyone is on your back, on everyone. Nobody should be left out. And you see kind of a sizable segment of society who may not have an interest in being part of your platform. You have to build something for them. I think directionally, it is not clear to me why video, like we have moved from text to photo, to image, to video. I'm not convinced, and that's the end game. AR/VR seems like an intuitive, the next evolution. But we just don't know whether it's that thing or it's something else. And who's going to control it? There are a lot of question-wise there. But I think directionally is right. We just don't know whether the details are right. And you could kind of desegregate it. OK, do you think VR/AR is the next big thing? And then is it meta that's going to own it and succeed, right? And so I think I would give a pretty high probability to the first one and a more like, I don't know to the second one. Because right now, everybody's looking at Apple. It's like, oh yeah, it's super high hand, but nobody had the first iPhones too. It was the phone for the early adopters and the rich and this and that. And now everybody has an iPhone. So do we know the fifth generation or something of the vision? It's not going to be the vision pro. It's going to be the vision error or whatever. This one could be like 800 bucks, $1,000 or something, but still good enough to be worth the price to most people. I don't know. That's unknowable for now. But I feel like in between, neurally linking yourself to something and having the images pump directly into your brain sometime in the sci-fi future, in between that and where we are now, there's probably some AR, VR glasses in our future. I totally agree. I think the consensus view is probably the right view, Who knows? Is the Apple is also going to dominate the AR/VR future? If that's the future, the AR/VR hardware future, it's almost impossible that only one company will control that. If it's exactly like the mobile computing platform that we have seen, then yeah, if Apple may not need a majority ownership share, they can just keep the profits. That's a possibility. And again, I think even if it acts like if Meta has 80% market share and Apple has 20% and let's say Meta doesn't make a significant amount of profit, but what it will do is basically it will give them the Google's position. That's what I was going to say. It could be the Android of it, not make much money on the hardware, but it allows them to control the software platform, and that's kind of like the base rate right now. Apple is a physical product company. They're very good at it. Meta is not. They don't have a good track record there. They could become one, but the DNA of a company is very, very hard to change. And hardware is incredibly hard because hardware is the integration of hardware and software and services and design and a brand. When Facebook tried to make the Facebook phone or whatever, at the time, even back then, they were still not cool enough. It was an aspirational to want a Facebook phone. I think that was probably part of the problem. A kind of joke, Zuckerberg founded Facebook in 2004. Zuckerberg founded another company, basically within Facebook, let's say four or five years ago, which is basically AR/VR, like the reality labs. It's literally a different company. So he's basically trying to do another zero to one, which is hard to do once. He's trying to do it twice. It's like what Jobs did for obviously the, he started a computer. He also beat other computer, but it's like a phone. But that's not how people usually perceive a phone. People thought it's just a dumb phone, but it's not. It's actually pretty smart. It's a personal computer. It's a personal computer, right? Exactly. Again, all great technology companies have done that. They basically founded another company. Think about Amazon. AWS. Right. It's a completely different company that they have founded within the original company. Even like Microsoft, they started with Windows. But think about all the tentacles they have built. now they're also buying activation. It's such a huge surface area for these big tech companies. Get it? Why is betting it? Obviously, I wish that he didn't spend 16 billion this year and he's probably going to spend maybe another 20 billion. Those are big numbers. It's almost hard to imagine how you can even spend that much money and it'd be productive. I wish I could see the bill, the line items of where all that money is going from. And some of it may be actually less surprising, just a bunch of GPU is a bunch of data center, a bunch of that stuff. But if you're actually doing R&D, it's hard to imagine actual R&D that money even being able to spend it. I wrote about this, I think in early this year. So in 2017, they had 20 billion expenses, made a back from sort of expenses was 20 billion, I think roughly speaking. And I kind of tried to estimate, okay, how many employees they have, what's their salary is, we have some publicly available data, what's the infrastructure cost. I kind of did the math, and then I had like 16 billion unallocated expenses. And their whole operating expense was 20 billion in 2017. That's insane. And the unallocated expense that I found, I don't know where to put this number, was 16 billion. This is before the layoff and all that stuff. So I'm pretty sure a lot of it is basically spending on AI stuff, all that. It's very hard to know what exactly that money is being spent to. To your point, it could be the CPUs and all that, the AR stuff. It's basically they are hiring. Again, think about it. If they are able to build AR glasses good enough to disrupt the smartphone, it's going to take some very high end ingenuity from physics perspective. And the people who are going to come up with these breakthroughs are not dumb people. They're extremely smart. I'm pretty sure they're extremely sought after. They're super expensive. Yeah, Apple wants them, right? Right. And if you look at video reports, Meta actually hired a lot of people from Apple and Microsoft over the last two, three years. I'm pretty sure those were not cheap resources. If you're hiring someone from Apple, someone from Microsoft, someone from Google to work on your AR/VR stuff, they are not cheap resources. They're very expensive. That's probably most of it, but to your point, it could also be the case that they are spending some of these other AI stuff that's just hard to kind of point to the, okay, that's where the money is going. I'd be curious to compare how much they're spending on metaverse stuff versus like other big R&D projects in history adjusted for inflation and all that. Okay, it's not like a Manhattan or Apollo project, but like how much it costs to develop the F-22 Raptor fighter or the B-2 bomber or that type of stuff. Not to build them because the units then cost a lot, but just the R&D stage, I'd be curious to know if META is on the chart, right, of all the biggest projects. Would they rank somewhere pretty high? Maybe over time they'll get almost to the top, depending on how it works. No, for sure. As we get closer to wrapping up, I think we've covered a lot. We need to talk about the most recent big splash. Threads, now they're going after Twitter. It's a thing, there's gonna be a cage mash. It's like reality is stranger than fiction these days. - Hopefully not. (laughs) - I have my own take about Threads that I wrote about recently, I can share it. But first I'm curious, what's your take on it? How do you perceive this new move? - I'm quite optimistic about Threads' probability of success. I think meta-historically has really, really struggled in finding the initial spark. And actually, their probability of success is almost 100% once they found the initial spark. So I know a lot of people are talking about how the retention rate has fallen and all that. I come back to the simple question. What would you say? What do you think the launch went? If you knew their weekly activities versus 30 million after a month, you'd be blown away. What? 30 million? Be real, for example, at its height, was 20 million monthly active users. This is, again, people trivializes building social media companies. It is just one month. Like, if it's a billion user product, it's gonna take like five years. It will just one month into 60 month charity. Again, there is no guarantee. - People are just looking for something to complain about, something to point to, aha, they're failing 'cause that's the bias of most people with these things. - And the funny thing is, I basically copy paste my tweets, both on Twitter or X, whatever you call it, and then on threads as well. And from time to time, it's so strange. I have like 3% of my followers that I have on Twitter on threads, something like 3,000. I get similar engagement. In many cases, if that's the case, I'm not faving that's a very common experience. It's actually not a very uncommon experience. There are some media reports out there, like how people are getting with similar engagement across the apps. Again, like I know it is possible. To be fair, I think you're a scarce resource on threads. There are fewer good posters there. So probably more activity goes to you. But I also agree that follower count on Twitter doesn't mean that much. Yeah, after 10 years, how many accounts are abandoned? How many are bots? How many are whatever? So the numbers are much closer than they would seem at first glance. But I think because you're one of the early adopters, you're kind of a showing point for fintuit over there, probably, which is not a bad thing, that's good for you. But I bet if everybody was equally active on both sides, maybe the engagement would be more diffused among posters. - Let me kind of contextualize what I was saying. I am not confident at all that Fingtui would move from Twitter to threads, but that wouldn't make me less confident about thread success in general. Because if you want to build a billion user product, obviously it's a much greater surface that meta will have to attract, then Twitter did. And maybe Fintuit may just remain confined to Twitter and not go to threads as possible. In fact, to attract that larger number of people, they may have to make sure that they don't bring over a lot of the Twitter people. Because if they want threads to be like the Disney version, that's more friendly to advertisers and possibly family friendly, and whatever, and Twitter stays the cage match, the metaphorical like Colosseum, maybe that's the business model. And maybe Twitter stays more relevant for like the interest graft and the intellectual discussions and finding your critics and all that. And threads is more almost like text, Instagram, more entertainment, more, I don't know, maybe not. Maybe they can get almost the whole thing without the trolls. I think that's been the downside with threads right now. My experiences every time I use their algo feed is a bunch of influencers, a bunch of random stuff I'm not interested in. Oh, you don't have following that yet. I do ever since that came out that's been better. But the volume is so low that I get to the end of my posts very quickly. Again, like we're looking at a one month product. But yeah, it's super early. I'm not judging it on that. It's very hard to know. If I can give you my you may have read it, but I'm going to give it for the listener. My thesis on the launch of threads is that I think it may have been almost too successful too quickly, which is a weird thing to even say. And in the long term, it may not matter. Right. Maybe it's better it happened that way. But I think in the short term, you usually have a bunch of early adopters and like innovators and like the tip of the spear, right? The avant-garde, they come into a place, and things are not working yet. Everything is kind of rough, some features are missing. But these early adopters, they don't care, they're used to it. And they create the culture and the whole foundation and they post a bunch of content. And so by the time the later adopters come in, there's already a bunch of established mores and there's a bunch of content and people and so it looks kind of lived in. while threads was so successful that like a hundred million people jammed in through the door in a week and none of that was established yet. Everybody was just seeing the random algo influencer stuff and the same jokes that people were cut and pasting from reddit or whatever and gave kind of a bad impression to a lot of these later adopters. Because the early adopters are used to that crap but the later people are like "I want to be entertained right now, right? If this doesn't feel good, I'm just gonna go back to my Mr. Beast videos or to TikTok, they're not used to seeing like the rough unfinished product. And so that may be why there was a mass migration in and a bunch of people kind of left, they may all be back, I don't know. But because they use the Instagram network, and as such high as success, there may be a tiny backlash there that may not matter, but it may still be real in the short term. On balance, the answer is we don't know whether this will be successful or not. But as I pointed out, is strictly speaking, Meta struggle has not been to scale product. Its primary struggle has been to find that initial spark. Obviously, just because they have been successful in the past doesn't mean they will be in the future. But the track record has been spectacular in scaling product. We'll see how it goes. And obviously, one of the big factors there, because it's the same kind of format, is Twitter, how they're doing. If Twitter was doing amazing, they were taking all the right decisions. It was an amazing experience. was getting better all the time, there would probably be less of a need in people's lives for one of those tweet-like apps. On that particular point, I think what I am sensing Elon Musk is doing, Elon Musk is actually trying to take a very high variance bet. When you think about Twitter, we think about mostly the text-based app, but I don't think he wants to be a text-based app. You named it X, which is basically supposed to be an everything app, which is going to be a very high variance bet. Very, very high variance bet. And if in a couple of years, if we actually, when you think about X, we don't think the X best app, we think something else, then two things can happen. One is it is enormously successful. Everyone is staying on X. The other thing is, no, people just want text. People who used to go to Twitter, they used to go for a specific purpose, and they basically want an app, which is primarily text, and that has become trends. So in that case, X will fail. For X to fail, I think if threads basically just keeps growing, X will have a very hard time. If the primary identity of X or Twitter remains a text based app, because you cannot have two exactly same thing, it's going to be hard to coexist, especially if that other app is growing. It's going to be tough. And all the advertisers are already plugged in, met us ecosystem and they just have to check a box somewhere and they're on threads now. would you go to the trouble of signing up for Twitter's or ex specific system unless it's a massive success. But to get to that success, you cannot earn money because he has such a high debt load. If things had happened differently and Musk had bought Twitter for a very low price, it was all equity almost and he had a bunch of time in front of him. I think it may still be super hard and he may make the same bet but I feel like he wouldn't be quite as back to the wall in corner and like having to do everything so quickly and having it to work the first time. You can't iterate a bunch of time and fill a bunch of time in a row. Of course, he could still decide to put more of his own money into it and giving it a longer runway. He's in a tough corner. It does feel he likes the challenges though. He probably prefers it to be so nerve wracking, at least historically speaking. In some sense, it kind of makes sense. If I were I don't ask, would I really care, would I really lose my sleeve if the equity value is declining from $44 billion to $10 billion, $5 billion? The only thing I would probably deeply care about is the equity value is greater than zero. I know he has a bunch of investors, but they're mostly VCs. Even their bet is probably not sizable in the fund that invested. It's probably, I don't know, like less than 5% or something like that of their fund that invested on Twitter. Even if that goes goes to zero, things go to zero all the time on VC portfolio. As long as he's being able to meet the interest payments to the banks, it almost doesn't matter what the equities work because everybody is fine with losing money, I think, like in a shareholding structure. I don't think that was the plan, but I think at this point, they're probably thinking that way. But I think the biggest impact-- and he may not care about it, but maybe he should-- is the impact on Tesla and SpaceX and the Musk brand itself. I was running a thought experiment at some point, What if Musk wasn't tweeting, Adam bought Twitter, and I just focused on Tesla and SpaceX and Neuralink and Starlink and doing cool industrialist sci-fi stuff. I think he would be like a beloved figure. He was still at the brand that he had some years ago, but I think he's tarnished a lot of his brand. And because his other companies are so personalized, Tesla is so Elon Musk in many ways. Even I want to buy an electric car and I'm probably going to end up buying a Tesla, but I'm less excited about it these days. And I would have been some years ago because it's like, Oh, yeah, but Musk does some stupid stuff. And the biggest impact on his fortunes and also reputation may be more reputational and indirectly on the other companies. I'm not saying it's going to be terrible or whatever, but you were still buying Tesla. Yeah. But I wasn't a wedding list for an EV six. It's just because the supply chains are so screwed up. Yeah. I have read about this point that you made. I think on the margin is going to make a difference. I'm not saying it's going to be all one or the other overnight or whatever, But his reputation is definitely not what he was. - Well, I'm kind of confused about this. I haven't really thought deeply about it. I will probably have to think deeply about it because I'm going to cover Tesla probably in a month. - Oh, that's gonna be interesting. - Yeah, the one thing I kind of thought about is, Twitter is probably one of the major reasons Tesla has such a cult following. So if you never do it in that counterfactual, it's hard to understand the net net. Like, what's the net result? - Maybe it's fans without still flooded Twitter with all kinds of stuff about Tesla, even if it didn't personally, or maybe in that counterfactual, like he did tweet, but he didn't go off the rails as many times. Less of the controversial stuff or crazy stuff, and just like, hey, here's a cool feature, here's the cool stuff we're doing, here's a factory tour. But you could say, well, the crazy stuff is what has attracted a lot of people to him, and the attention, right? The kind of narcissism model of bringing so much attention to one person. I don't know, like I can't run it, but I do know that there's a downside to all this. - That's the hard part for many of these like you have to sign up for the whole package. You can't just sign up for the bits and pieces. Back to high variance. You can't tell them how to run their business. They can't tell them how to behave themselves. That's why these things end up becoming a very qualitative judgment. The question is basically, what's the net result? How do you think about the net impact? And that's quality. That's not quantitative. There is no objective answer. I can't totally understand where you are coming from. coming from. But if someone wants to take the other side of the argument and say, "Hey, look what happened," Tesla must himself say Tesla was very close to the finish line. Bankruptcy, yeah. Yeah, bankruptcy. Not so long ago. It's not 15 years ago. Multiple times. Multiple times. In the grid financial crisis and then a few times after that. And the fact that they had such a cult following. Maybe that's one of the reasons Tesla survived. Not only reason, obviously, but one of the reasons. Oh, at the time, it helped him a lot. And now maybe we are seeing some other side effects. I'm kind of of the opinion, almost all with strengths that people have, that their weakness are very kind of closely resembled, which is not so far removed from their strengths. And it basically just gets highlighted based on what's going on. For example, when the stock was going down, then the negative stop gets highlighted. But Musk hasn't really changed our, in my opinion, over the last three to five. Like people were shorting Tesla. They shorted because they looked at the negative stuff and thought this guy's a crook. - Oh yeah, Tesla Q was quite something. - People still talk about he's not like a real engineer. Like he doesn't know what he's doing. They still talk about that stuff. It's always a question about like net result. If you want to find the negative stuff, you will find it, no problem. There's no doubt in my mind. If you want to find the positive stuff, if you're looking at it from an impression point of view, you should be able to find the positive stuff as well. What's the net? That's the hard question. I'm not here to tell you that the net result is positive just because it has been positive. It may not be positive going forward, so who knows? That's the qualitative question that investors or even consumers will have to answer. - Well, I know at some point when you have done your deep dive on Tesla, we're gonna do a podcast about Tesla, right? (both laughing) Back to Meta, any closing remarks before we wrap this up? - Yeah, I guess I should probably just mention how I started. I know for a fact, so many investors get attracted to meta platforms because of low PE. Don't make the mistake. It's not going to save you. The low PE is not going to save you. If you want to own a piece of meta platforms, you have a better reason than low PE. Low PE may remain low for a long period of time. There is no reason why if you look at Apple, for God's sake, was trading at 10, 15 times PE for five, six years. Remember I bought it back then It's not a three month thing like oh now everything's changed. No, no, no, it took five six seven years Who knows that Loebi it's not a catalyst. It's nothing. So you should have Definitely a reason beyond that. But again, it is an uncomfortable company to own if you don't have a thick skin everyone has an opinion and Almost 80 to 90 percent of the people who have the opinion will not do the work It is your job to not engage with them. So again, you need a lot of self-restraint and a lot of control over your emotions before buying these companies, before buying meta platforms. So I would say for most people probably who are listening to this podcast, it's not a good fit for them. They may not want to go through such experiences. But also maybe one of the reasons why there may be alpha. There are many reasons why alpha may exist, behavioral is one of those reasons. I vividly remember there are people tweeting on Twitter who say you should not own Met at any price. Price was $100. Now because they have $300, they have changed it to you. Now they're saying all the good stuff. Yes, a lot of things have changed, fundamentally changed, like the expense and all that, but the discomforting bits may come back again. It's not a one-off thing. There will be another transition and they will have to go through another sort of like high-cap-ex environment, Op-Ex environment. So the bet is basically, as I see it personally, it's basically the aggregate cash flow that I want to bet on. What's the next five years aggregate cash flow and whether I think that's going to be higher than what, let's say, the stock price is implying? I have no clue what's the next one year. I can't even say with high conviction I have a huge certainty about the next five years. But again, based on the track records that I have studied, I have seen so far, I do think it's a better bet than most people realize, but it's a bet. So nothing is guaranteed. Nothing is 100% as it's always the case for investing. But yeah, that probably still needs a good reminder for most people that a bet is a bet, nothing is guaranteed. Well said, there's a reason why you get paid in the stock market if you succeed in an investment. If it was that easy, everybody would do it. Thanks so much for joining me. Anyone listening to this wanting to learn more about meta, you can go and check out MBI Deep Dives. There's a lot of I think there's 10 pieces on Meta there. I'm gonna link them in the show notes. Check it out. MBI did dies It's a bargain sign up That was my unpaid ad Thanks you so much I'm looking forward to seeing you and Melanie and I make the trip in a few weeks looking forward to it until then Take care. Really appreciate you inviting me again. Thank you so much much.