This morning I took a look at the carnage in Facebook stock. I went to Stocktwits and looked at some of the sentiments of people who post there for grins. There were bulls about. Still some bears.
I took a look at a 5-year chart. Here is a link to see how bad the carnage is. Charts aren’t great predictors of the future, but they are fantastic at helping you analyze the past. They do help you strategize about entry and exit points, but they are not foolproof. Year to date, Facebook is down just over 70%.
They received a nice $25 million dollar fine today by a Washington state judge for their criminal campaign finance actions. In 2019, they received a nice $5B fine for privacy breaches.
I think Ed Zitron hit the nail on the head in this piece.
I won’t judge whether spending $15B on a new product idea is a good use of company capital or not. But two things in the Zitron piece stood out large for me.
He is, however, clearly the architect of its destruction. Zuckerberg mishandled the entire Cambridge Analytica situation, which I would argue was the first real executive test. Facebook’s revenue has been stumbling, and now he has now invested $15 billion into “the metaverse” without it being immediately obvious where that money went or why it went there.
Zuckerberg has shown that he has little understanding of how people use computers. He lacks Steve Jobs’ vision or charm, and, ironically, Elon Musk’s understanding of even the basics of social media. He’s charmless, yet believes he’s an electric genius that people should aspire to. His arrogance will choke the life from Meta, forcing them to burn capital until the advertising-based revenue from the real part of the company dwindles to the point that there’s no possible way to justify Reality Labs’ existence.
Except I do not believe Zuckerberg has the humility, awareness or experience of the world he’s creating products for to reliably know what people want, or might want, or will ever want.
Of course, because of the way Facebook’s corporate structure is organized, Zuckerberg is king and cannot be replaced.
Because he is a king and not a CEO, the people he hires act like servants to the king. They establish the culture he wants to establish and espouse and enact the values he wants to be implemented.
In startup investing, one thing you learn early is to bet on jockeys and not ideas. Zuckerberg was obviously a great jockey for a startup. He took a company from Zero to One. He should thank his lucky stars he had great investors like Peter Thiel and Marc Andreessen to advise him.
However, in public company investing, Warren Buffett has said to invest in great management teams as well. Here is a link to a video clip from 1994 where he speaks about it at his annual meeting.
Great management in a public company will figure out how to get out of unplanned predicaments. They also will cut bait and stop fishing in ponds when they are wrong. It’s okay to fail, but to continue to pursue failure is lethal.
I thought it was hilarious that after the 2016 election, Zuckerberg spent a small amount of time with a Wisconsin dairy farmer to “learn about rural people”. What an idiot. It shows how elite he thinks he is. The elite see themselves as so smart they want to dictate to the great unwashed. They are so unaware.
This morning my wife mentioned to me that a woman on Nextdoor who graduated from the prestigious Northwestern University was looking for a job babysitting and dog walking. I will spare my alma mater’s Fighting Illini jokes about how to get an NU grad to get off your porch (tip them for the pizza) but Joe Biden wants me to forgive her student loans?
The Wisconsin dairy farmer and people like him would know exactly what to do if they were in the same situation as the Northwestern grad. Plus, they probably wouldn’t have gotten themselves into that spot in the first place.
The question Facebook investors have to ask themselves is what are the goals of the management team at Facebook? Is it to enrich the shareholders? Is Metaverse a great long-term bet on the future that will have a more than 3x return to the valuation of the company? Or is it something different?
For certain, Facebook employees and the management team have tried to indoctrinate some “woke” ideology on platform participants over the past several years. Instead of being a facilitator, they are now a publishing platform with a direct ideology. Just like a woke Karen who still wears a worthless facemask as a symbol of their fealty to Covid restrictions, Facebook is trying to instill different beliefs in its users that they know go against their own beliefs and lifelong learnings.
Facebook is a powerful platform and can recover. But, is management self-aware enough and can they abandon their personal ideologies to turn the ship around?
I don’t think so. It’s a religion and fanaticism. It’s not operating a business.
Firstly, I suspect Musk is going rebuild Twitter to try to basically crush Facebook. I’m never a good predictor of tech trends but I think VR is going nowhere. Very few but diehard techies and invalids will allow a screen attached to their face for any significant length of time. The irony of the lockdowns, which I’m sure Zuck thought would create demand for VR, is that many people have realized too much attachment to tech devices is actually detrimental to mental and physical health. They are embracing nature to get away from the tech ball and chain. It’ll be good for society when he fails and we can all move on from the Facebook era.
Fabulous, timely read as usual. You hit the nail on the head: a good founder is often (usually) not a good CEO.
The top job of a CEO is to run a profitable business and use earnings to drive shareholder value.
Buried in that duty is the job of allocating capital amongst competing interests, assessing and analyzing comparative performance, and slapping the winners with a checkbook whilst bayoneting the losers.
There is even room for a flight of fancy or two, but the idea you can spend $15B annually at a penny candy store just because you have a sweet tooth is nonsense.
The financial return of a new endeavor is the only useful yardstick to hold up to determine success or failure. Double down on the winners and throttle the losers.
Zuck gets all the credit in the world for being a genius founder, but he is an incompetent CEO which is the product of his control of the voting stock (and thus job longevity) and the inability of a board of directors to exert control based on performance.
You correctly note he had tons of great advice in the startup stage.
This story has a predictable outcome and the stock chart DOES predict the future -- if you keep doing the same stupid capital allocation, you will bankrupt the company eventually.
JLM
www.themusingsofthebigredcar.com