TIP848: Meta (META): What the Market Misses? w/ Daniel Mahncke & Shawn O'Malley

Daniel Mahncke and Shawn O’Malley revisit Meta Platforms (NASDAQ: META), the advertising machine behind Facebook, Instagram, and WhatsApp that reaches 3.6 billion people every day — over 40% of the world’s population — and just grew ad revenue 27% to a nearly $240 billion annual run rate. Yet the stock trades more than 20% below its highs, because the money is going out even faster than it’s coming in: operating margins fell from 43% to 31% in a single year, quarterly free cash flow collapsed from $8.5 billion to $784 million, and capex guidance now sits at $130–145 billion this year — with analysts penciling in $200 billion for next. Daniel and Shawn dig into what all that spending actually buys. Is this Mark Zuckerberg’s third failed attempt to turn Meta into a platform — after the FarmVille-era Facebook apps and a $100 billion metaverse — or does AI finally make the vision real, whether through AI glasses, a personal agent, a budding cloud business, or an ad engine where every pixel becomes sellable inventory? They also cover Meta’s $17 billion settlement with 47 states over teen safety, the special purpose vehicles keeping tens of billions of data-center debt off Meta’s balance sheet, why Apple is quietly taking the opposite side of Meta’s bet, and why Wall Street rewards Google for the same capex it punishes Meta for. In the end, Daniel rebuilds his valuation model from scratch and decides whether Meta finally earns a spot in The Intrinsic Value Portfolio. IN THIS EPISODE YOU’LL LEARN: (00:00:00) Intro (00:01:54) About Zuckerberg’s Platform Dream (00:11:52) Why Meta was sued and how it settled (00:25:18) What the regulatory risk means for Meta’s future (00:30:56) What Meta’s AI vision looks like (00:39:00) How AI could revolutionize Meta’s Ads Business (00:42:02) About the optionality of WhatsApp (00:53:21) Why AI could make Meta glasses a success (01:06:58) How Meta is planning to build a Cloud Business (01:22:46) Meta's valuation discussion (01:26:29) How much Meta's stock is actually worth (01:26:51) Whether META will be added to The Intrinsic Value Portfolio Disclaimer: Slight discrepancies in the timestamps may occur due to podcast platform differences. BOOKS AND RESOURCES Join the exclusive ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Intrinsic Value Mastermind Community⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Track ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠The Intrinsic Value Portfolio⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠. Portfolio Review ⁠⁠⁠⁠⁠⁠⁠⁠Submit Tool⁠⁠⁠⁠⁠⁠⁠⁠. Our original deep-dive on Meta. Zuckerberg’s WSJ Article – The AI Future is for Everyone. Ben Thompson’s Research at Stratechery. Check out our previous Intrinsic Value breakdowns: Alphabet, Microsoft, SpaceX. Related ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠books⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠ mentioned in the podcast. 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• 0:00Speaker 00

  You're listening to TIP.

• 0:03Speaker 01

  Welcome back to the Investors Podcast, episode 848. And the last stock I pitched to you, Sean, was Copart, which is a company that we looked at last year. And today, we will have yet another company that we covered before and that deserves another look. And that company is Meta. And I can't really spoil that. I started building a position in it in my personal account not too long ago.

• 0:27Speaker 02

  It's only been nine months since we first covered Meta, but it does somehow feel like an eternity ago with all the news that's come out from the hyperscalers this year. And just a couple of months pass and you already feel like you need to discuss the opportunity again and provide an update. And that's what we're doing today.

• 0:42Speaker 01

  I'm not sure if you remember, but last time in the episode, you said that you would like to wait for the stock to drop further and perhaps see sort of an advertising downturn before you would actually go out and buy Meta. And we didn't really see an advertising downturn, but the stock still declined about 25% from yearly highs on some other news that I'm quite sure we will get into today.

• 1:04Speaker 02

  Let's get into it.

• 1:08Speaker 00

  Since 2014, with more than 200 million downloads, we have interviewed the world's best investors, studied deeply the principles of value investing and uncovered many compelling investment opportunities. We focus on understanding businesses and intrinsic value, investing accordingly and sharing everything we learn with you. This show is not investment advice. It's intended for informational and entertainment purposes only. All opinions expressed by hosts and guests are solely their own and they may have investments in the securities discussed. Now for your hosts, Sean O'Malley and Daniel Manca.

• 1:54Speaker 02

  There's so much going on that it's difficult to even know where to start today, Daniel. Perhaps we go with what has changed since our first episode in January on Meta. And some of the most notable things have probably been Meta announcing that it would build a cloud business, more or less, and that there is, or better said, was a major lawsuit hanging over Meta's head.

• 2:17Speaker 01

  Yeah, I think it was safe to say there was no shortage of news, unsurprisingly, whenever it comes to Meta. And just for context, in January of this year, Mark Zuckerberg announced on threats, which is sort of the equivalent to Twitter or X, that Meta wants to build out AI infrastructure at scale. And he talked about building tens of gigawatts of data center capacity this decade, which means hundreds of gigawatts or more over time. So thinking the next couple of decades. And just for context, a single gigawatt is roughly the output of a nuclear reactor. So we're talking about quite a lot of energy here. And for that project, he even brought in Dina Powell McCormick, who is a former government official. And she's sort of working as a president and vice chairman on that project,

• 3:01Speaker 01

  explicitly there for just working on government partnerships and to finance the build out of these data centers.

• 3:08Speaker 02

  It's a fascinating hire, I think, in itself. When your capex plans are so big that you need someone whose sole job is essentially to diplomacy with the federal government, then you know you're making some serious capital allocations. And having that political support at this moment, though, is pretty important optically. Virginia is the data center capital of the country, if not the world, probably. And so I have been seeing data centers popping up my entire life since I was a kid, but I don't really remember them ever being controversial until recently. And so we actually had a family member with some land that for years they were going back and forth with the courts to try and win approval for a massive data center to be built on that property. And that deal just fell through recently.

• 3:53Speaker 02

  So the sentiment changes in AI are creating real obstacles for big tech companies that are manifesting as legal opposition, for example. And so I was looking at a Pew survey on this recently and about half of all Americans say they're more nervous about AI than excited about it, while 40% say they're equally excited and concerned. And then only 10% say they're more excited than concerned. So that is not exactly a ringing endorsement of the national popularity of AI.

• 4:23Speaker 01

  And all of that in a country that is usually more AI or tech first than any other country on the planet. So I think it says something about just the general thought of, you know, people on this matter. And of course, it also comes from the fact that for a long time, AI companies were basically telling you, we're coming for your jobs. I think that doesn't help, especially in America. And I recently talked to a member of our mastermind community and he told me some, let's say, fascinating stories. He used to work in the White House and now he basically runs a consulting business where, among other companies, Meta would go to seek help when it needs connections to politicians for a feature project, which is pretty much exactly what's happening right now. And from what I gathered, I think Meta is not very good at, let's say, understanding how Washington works. I definitely hope they will do a better job this time

• 5:08Speaker 01

  because considering the capex announcements, it would be good if they didn't mess up this project and this new sort of regulation. I think the project that I discussed back then was about a decade ago, Meta trying to position a stablecoin, which didn't work out back then, but has since become a huge thing. So if they would have just played their cards better, this could have been a huge thing for Meta very early on. And I just hope this doesn't become, you know, sort of a theme for them to mess this up because they have these enormous capital investments right now. And obviously, that's the case for most of the hyperscalers. Right now, it's always looking like you suspect that they put even more money into these projects and then they even come out on top of what analysts imagine. So for example, Meta's 2026 capex guidance has been raised multiple times

• 5:53Speaker 01

  and is now between $130 and $145 billion. There is no official guidance for 2027 yet, but analysts project that it will be close to $200 billion. An estimate that is also based on Meta's cloud plans, obviously, but there's so much more than just the cloud that I think Zuckerberg basically sees AI and all the opportunities as his third shot, basically, at finally building a platform for Meta and his company.

• 6:21Speaker 02

  Just quickly, so we get the audience on the same page here. Daniel, to put you on the spot, maybe, how about we just quickly define what a hyperscaler is and what that means?

• 6:30Speaker 01

  Well, basically, I use this term, maybe wrongly, for a very long time, where I just felt like most of the Mac 7 companies are hyperscalers. But that's actually not true. Hyperscalers are all the companies that have cloud businesses, right? So obviously, when you talk about companies like Meta, by now it would be one of them. But before that, it was primarily Amazon, it was Oracle, you know, a company that I didn't necessarily think about it. And then you have Google and of course, you also have Microsoft. So those are the companies that we talk about when we talk about hyperscalers. It's not the same as the Mac 7, you know, Apple is not a hyperscaler. Nvidia, I mean, not even sure entirely whether they count into that direction or not. But typically, we're talking Amazon, we're talking Google, Microsoft, and by now, we're also talking Meta.

• 7:10Speaker 02

  It's one of those terms that you hear so much and seems so important that you're almost embarrassed to ask what it means. So there you go. That's a little 101 on hyperscalers. And, you know, we talked before the show, going back to your previous point a moment ago, that perhaps it might make sense to quickly give some background on what exactly we mean when we say that Meta is on its third attempt to build a platform. And so younger listeners might not remember this, and it feels funny to say that, but Facebook used to be a desktop-based app in the late 2000s. And back then, it tried to be much more than just a social network. Facebook had third-party apps and games and payments. And if you ever planted crops in Farmville,

• 7:52Speaker 02

  you were part of Zuckerberg's first attempt to build a platform ecosystem. And I don't know about you, Daniel, but I very much remember Farmville and actually wonder if anyone still plays that. At the company's IPO in 2012, games and apps were around 20% of Facebook's business. So this was no joke.

• 8:09Speaker 01

  Yeah, it was quite big back then. I gotta say, I don't remember if I played Farmville. I think there was a popular farming game at about the same time, which was basically when I was in elementary school. But I think it wasn't Farmville, probably just a cheap knockoff of Facebook's original game. But anyway, the problem for Meta, or back then still Facebook, was that the world ended up moving, as we all know today, to mobile. And Apple started to make the rules in that environment. And Apple basically said, you can't have a platform within our own platform, which is the App Store, of course. So Facebook had to double down on its social network business and obviously advertising to monetize that. And I think in hindsight, you can safely say that this has probably been the best thing that ever happened to Meta. But I also believe that Zuckerberg himself was never really happy with that position.

• 8:55Speaker 01

  To me, it just seems like he's too much of a visionary and a tech guy for, you know, being someone who's happy just running an ads business for the rest of his life, that at least to some extent, depends on Apple's moods and of course, the App Store. So I think I can remember that he openly said that he always admired Microsoft and the platform that they have built. And I think it was in 2014, so two years after the rise of mobile smartphones that basically killed his first platform, that he spent $2 billion on Oculus, which probably most of us will still remember. And obviously, AR and VR are still a big thing today at the company. We will talk about them later today. But by far, the biggest investment and his attempt on building a platform

• 9:36Speaker 01

  has been the Metaverse, which is obviously also why the company today is not named Facebook anymore, but Meta.

• 9:43Speaker 02

  I think it's pretty good context for understanding how something like the metaverse could even happen, where in hindsight, there's an absolutely mind-numbing amount of cash burned on something that has yet to pan out, if ever, despite the founder of one of the most successful companies in the history of capitalism, being so confident in the technology that he renamed the company after. So I sometimes see memes on social media showing these like virtual meetings or boardroom snippets with a caption asking how such a terrible design that looks like a game on the Wii system from the early 2000s, how that could cost close to $100 billion to develop. And I guess the answer said Zuckerberg was desperately

• 10:27Speaker 02

  trying to build a platform that was going to help cut his dependence on Apple. And with that vision in mind, it does make much more sense to spend that amount of money and maybe rename your entire company. But before you change your name, you would think that you would maybe make sure that the tech was a little further along and had some real evidence that this is something consumers want to pay for. So it is a bit complicating in the context of Meta's massive AI bets today, which, to be fair, they're not alone in. We know Zuckerberg, though, is willing to overspend on things he believes in, and he's desperate to diversify Meta's core business beyond advertising.

• 11:05Speaker 01

  Well, and I think in this case, it's not only to create a new platform, but also just because he clearly sees AI spend as a defense mechanism. So he has publicly said that he would much rather invest too much money than just wake up in a couple of years' time, realizing that he under-invested and got disrupted, which I think is generally a healthy perspective for, you know, a company and a CEO to have. And I'm not exactly sure which side I'm on in this case. I mean, on the one hand, I believe Meta has one of the strongest ad engines ever built with network effects that make it nearly impossible to disrupt. But on the other hand, and I know that's a take that not too many people share, and we discussed it before our call here, I actually buy into the AR glasses story, which of course, there are also some caveats, but generally, I do think this could become

• 11:50Speaker 01

  a sort of platform in the future.

• 11:53Speaker 02

  I feel a little betrayed. I thought we were on the same page, you know, Daniel. We're both really tough on Snapchat for their AR glasses. So I have to say, this is a little surprising to me. I know we were both unified and mocking those things, at least from Snapchat, where they're really a debacle. But something else we should get into, though, now that we're mentioning the core business, is that Meta just faced lawsuits that threatened exactly this business and its mode. And so for the longest time, Meta has been an annuity-like business in which you could count on tens of billions of dollars in advertising cash flow to consistently be coming in. And so that's really the only reason why Zuckerberg has been able to afford spending so much money on all these other things that he's

• 12:34Speaker 02

  wanted to bet on. And so if that is threatened, we would need to look even more critically at the commitments Meta is currently making.

• 12:43Speaker 01

  If you say it like that, we might actually want to start there, I would say. So just for context, in case you missed it, which was quite difficult to do, there was a lawsuit in New Mexico in 2023, so about three years ago, in which Meta was accused of basically endangering children. And that case went to trial earlier this year, and Meta was found liable. So it was ordered to pay $375 million. And that was only the first phase of this entire lawsuit debate. So then the second phase came, and the question was basically whether Meta had created a so-called public nuisance, which is a legal concept, which was historically used against polluters and opioid distributors. And just a few weeks

• 13:23Speaker 01

  ago, in August, the judge ruled that it did actually commit this sort of public nuisance, and it found the company or the platform were, quote, "a significant contributing cause of the state's teen mental health crisis." And it also ordered Meta to pay another $570 million in abatement fund, which is basically a fund that pays for prevention, screening, and treatment of the harms. So the total damages were close to $1 billion. And I should say that Meta is appealing, but this is where we currently stand.

• 13:55Speaker 02

  And the real problem here is not the billion dollars in damages, right? It takes Meta less than a week to generate that much in profit, which is absurd to say. But the fact that Meta also had to change how its product works in New Mexico, and that this obviously opened the floodgates for more lawsuits, that's sort of the bigger story. And Meta was actually ordered to hide like counts for users under 18 unless a parent approved otherwise. They were forced to pause notifications sent to minors between 10:00 PM and 7:00 AM, and they had to cap minors' usage at 90 hours a month, so roughly three hours a day.

• 14:33Speaker 01

  And the recommendation of the state attorney general was that other states and even other countries should use this as a blueprint whenever they go out against Meta. So this was actually just the beginning because of that, because, you know, the one thing that everyone was actually talking about in the last couple of weeks was the massive Oakland trial, where 29 states went to court against Meta. And the trial was actually expected to run for about six to eight weeks, which would have meant that a verdict would be there sometime around October. And Zuckerberg, Instagram chief Adam Mosseri, and former COO Sheryl Sandberg were all expected to testify, but things came a bit differently. I mean, I think back then, we still talked about a headline figure for

• 15:13Speaker 01

  potential fines in this trial that was worth $1.4 trillion. That's trillion, not with a B, billion, dollars, which is pretty much exactly the market cap that Meta is trading at today.

• 15:24Speaker 02

  Yeah, that $1.4 trillion number was great for headlines and for screenshotting, but it never actually was a realistic outcome in the case, as I'm sure you know. If I'm not mistaken, I think this was actually calculated by Meta in an attempt to effectively scare people and maybe get the public opinion on their side, since it is not in most people's interest to completely wipe out an American social media platform where it's pretty much assured that a Chinese one is just going to take its place and probably has many of the same mechanics in place as well.

• 15:58Speaker 01

  Yeah, I think the way the number came up is by basically stacking up all the individual violations. So part of the case is brought under what is called COPPA, C-O-P-P-A, and that's the Children's Online Privacy Protection Act. And that's basically a federal law that prohibits collecting data on kids under the age of 13 years old without parental consent. And COPPA carries what is called a civil penalty per violation. So if you tweet every under 13 account over the years, and you stack up all of them as individual violations, and then you multiply that by the maximum penalty per violations, which is what Meta did, then you would arrive at this theoretical ceiling of $1.4 trillion. And as you said,

• 16:41Speaker 01

  that figure came from Meta's own legal filings. Nobody involved actually thought, you know, this would be a realistic outcome. I think the amount actually argued in the courtroom was close to $200 billion. And even those $200 billion would have been a pretty massive hit to Meta, obviously. And although these fines usually don't come at once, they're basically paid over many decades. And historically, US courts have usually awarded around 2% of the statutory maximum, so $1.4 trillion in this case, or 20% of the ask, which is sort of the 200 billion rate. And that's an absolute maximum. So if Meta would have lost the case, I personally would have expected payments to be between $20 and $30 billion. But we're

• 17:22Speaker 01

  talking in the past tense here, because Meta managed to settle very early on, and this, I would say, really came as a surprise to me. I still remember, like, studying my research and thinking, gosh, when this episode comes out, we likely won't know how this turns out. And then only a day later, we had a settlement. So I don't know, to me, it seems like the states knew they didn't really have a chance in court, so they probably just decided to take the money and settle this way.

• 17:46Speaker 02

  Settlement ended up being less than $18 billion. And that is not shabby by any means, even if it was below what your bottom estimate was for what might have happened in court. And most importantly, there weren't any major changes to how Meta needs to operate its apps either. And so it's similar to what happened in New Mexico. Instagram basically just goes ahead with hiding likes for teens, they add in a time cap, and then maybe you have some nighttime and schooltime blocks, but really nothing major that's fundamental to the functioning of the business.

• 18:18Speaker 01

  And there are actually a couple of interesting things when you look into the details of what they came up with. So the first thing is that certain parts of the apps are not included here. So DMs, for example, you can still even at night, for example, open DMs. And I think it was a couple of years ago where the Instagram management team was basically saying that a huge part of the growth for the app is coming from the DM section. So I could even see how this sort of turns into an advantage over time, because all the other social media apps that don't have this DM direct message, I should say, section, might have to block their apps, just like Meta did. But people can still visit Meta just on the DM section. But that was only one of the interesting facts. The other one is that Meta only pays $18 billion under two

• 19:03Speaker 01

  conditions. So the first would be that YouTube and TikTok also agree to implement similar measures as Meta. And this is sort of why I'm saying, if you don't have a DM function, like YouTube, for example, this would hit you much harder compared to Meta. And then the second thing, or the second condition, is that YouTube and TikTok both match half of the $5.3 billion payment each. So for now, Meta only has to pay $12 billion, and that's also over a 10-year time window, I should say. And they managed to sort of pressure their competitors into similar rules, and to some extent, also similar payments. And I think this is quite important, because if Meta needs to restrict its app for minors, while competitors don't, then Meta obviously

• 19:47Speaker 01

  has a competitive disadvantage, right? I mean, this doesn't really matter financially, because these teens account only account for about 1% of revenue. But if today's teens don't use Meta's apps, then you know, the 20 and 30-year-olds of the next decade might not use them either, or at least not to the same extent. And I think the biggest advantage of the settlement is obviously that a lot of uncertainty that could have been there for years, basically, is now more or less resolved. Because even if the trial would have been over after six weeks, if Meta had been found guilty or liable, there would have been many more lawsuits over the next couple of years, where the chances for Meta winning would have been significantly worse. In fact, there likely will still be many more lawsuits anyway. I mean, Meta is still facing

• 20:32Speaker 01

  hundreds of pending lawsuits from individuals, and from families, and even school districts and others. But I do believe that, you know, setting this precedent of settling instead of losing in court is a good one. All that said, I could still imagine, you know, I live in the EU, and knowing the EU, I would be surprised if there aren't more lawsuits coming from here, because it seems like it has become a business model of just suing the big tech in the US to get back what you don't get in tax revenue. But again, even if I assume that they will end up with a lot more lawsuits, and perhaps something like $2 billion in annual costs for these lawsuits over the next decade, I think it's more or less negligible, if on the other hand, the fear of further regulation that actually goes into the algorithm is gone.

• 21:18Speaker 02

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  card that's right for you and apply at joinbuilt.com/tip. That's J-O-I-N-B-I-L-T.com/tip. Use our link so they know we sent you. Terms apply, subject to approval and eligibility. Built cards are issued by Column NA, Member FDIC, pursuant to license from Mastercard International, Incorporated. All right, back to the show. I think it's really interesting to think about the competitive dynamics here, because on the one hand, you could probably argue that for Meta to be restricted in its ability to target and resonate with the next generation of users, that would be a competitive disadvantage.

• 24:43Speaker 02

  On the flip side, though, and this seems hard to imagine with Meta, but if they're the only ones with these really strict enforcements, then they get to wear this veil of, hey, we are, you know, pioneering child protection on the internet. And that could actually be a tremendous rebranding opportunity for them to earn back credibility and basically make all their competitors look bad. So I don't know, there's different ways to look at how this will all unfold. And for me, in the past, I have actually opted not to personally invest in Meta, because I felt like the impact they've had on society has been particularly damaging, and they really have pioneered many of the worst tactics that we've seen be adopted by other social media companies. I also

• 25:28Speaker 02

  recognize that that can be a really costly perspective to have as an investor in terms of missing out on great returns. So I would say I could probably get more comfortable with an investment in Meta if the price was right, and I felt good about these new protections being put in place. But I definitely come with my own biases. And personally, I'm pretty happy to see these rulings go into effect. But I'm also skeptical that kids will find a way around them. And if not, they'll find other platforms to use. And so it's probably as good of a time as ever to launch a social media app targeting folks under 18, or to be a Chinese competitor that can come in and try and grab market share for social media in the US. And I remember when

• 26:12Speaker 02

  TikTok was banned, for example, overnight, it seemed like everyone immediately downloaded an app called Little Red Book, that I'm not even sure, I don't even think like half the app was in English, or barely any of it was in English. People were downloading it and using it, and was the number one on the App Store for like a week, because it was scratching the itch of TikTok while TikTok was gone. So what's your take, though, on these rulings?

• 26:36Speaker 01

  Yeah, first I gotta say, I've never heard of that app. So that has just gone completely by me. Also, TikTok was never not allowed here, so maybe that's why. But yeah, I think it's difficult. I've certainly seen takes online that I disagree with. So for example, some people say that Meta was being sued for basically being too addictive. And I think that's a misfiling of what actually happened, in my opinion. Obviously, if that were the case, you could argue that many things are too addictive. I mean, should video games be illegal if they keep kids on the screen for four hours, maybe movies or even books? I mean, for example, I just thought about the app or the game Roblox, which I think is the number one thing for young people nowadays to play. And I've heard that the average time they play it per day is three

• 27:17Speaker 01

  hours. That's the average. So you'll probably have a lot more, you know, young kids that play that game for many more hours. And then you have to think about, how would you regulate that? So I don't believe Meta was sued for being too addictive. I think was sued for the intentional design of products to induce what you could probably call compulsive or addictive behavior in kids and teens. And I think the difference here is that it's about strategically focusing on young people and exploiting their weaknesses, then hiding that this is even happening. And I think that's different than, for example, a good movie or a good game that ties you to the screen for a couple of hours, or saying that, you know, something is clearly designed for kids in the first place, because at that point, you know, they are subject to special regulation,

• 28:02Speaker 01

  which Meta has not been, although you could argue they tailor the product for kids and young teens. And of course, this would also mean that, you know, YouTube Shorts would need to face similar lawsuits, and maybe just YouTube as a whole, which is again, as you said, what Meta is kind of now saying out publicly. They had this sort of open letter to TikTok and YouTube, portraying themselves as, you know, the white knight, standing there, protecting kids, and that these competitors are not doing that. And of course, there's something to it. I think most social media has these problems, which is also why I'm not biased against Meta, maybe in the same way that you are, because I told you earlier, I personally probably spent much more time on YouTube. So to me, what's more addictive is YouTube Shorts, when I compare that to, for

• 28:45Speaker 01

  example, Instagram. And I also think, and this might be an unpopular take or opinion, that many parents who grew up without using a smartphone, or social media for that sake, simply are a bit over their heads when it comes to knowing how to control their kids' usage, but also sort of understand why they would need to do that in the first place. I mean, looking at, you know, the New Mexico case, where they basically decided to pause push notifications to minors between, as you said, 10:00 PM and 7:00 AM, and to cap minors' usage at, I think it was 90 hours a month. That's all stuff that I believe parents should be able to control by themselves. But obviously, that also doesn't change the fact that there is a problem with how Meta built its products for kids, and that's why they got sued.

• 29:30Speaker 02

  There's definitely a kind of fundamental question about the relationship people want to have with the government here and what types of things you want to be regulated and what falls to personal autonomy and parenting and what should fall to government or large corporations to dictate. And I don't know if we want to get into all that, but I would say generally, even though this trial quickly ended with a settlement and should give Meta some breathing room in the future for some of these pressures, I think Meta will continue to have problems with trials as most Mag7 companies have and will. But since Meta's business is more concentrated than Google's, Apple's, or Microsoft's, it'll always be a bigger problem for Meta. And as

• 30:13Speaker 02

  soon as something could threaten their ad algorithm, that really makes it an existential question for Meta and their existence, which is why Zuckerberg can't let go of the platform idea we've talked about today and expanding his business beyond advertising, even though advertising has done him very well. So let's get back to Zuckerberg's AI vision for Meta, because I think it's pretty unique compared to some of the other hyperscalers and how it could change the company's future. And so a year ago, Meta's AI story was really just centered on its LLM, Llama. Today, though, it seems it's taken on a life of its own and there are many more layers to this vision now.

• 30:54Speaker 01

  Yeah, I think by now there are many use cases for AI that Zuckerberg continues to talk about. And I think it's actually part of the communications problem for Meta. I think the market is just not buying the entire story. And that's primarily because of what we talked about in the beginning, which is that Zuckerberg has this major vision of becoming a platform that simply hasn't worked out a single time that he tried doing it. And in fact, there wasn't a single self-created product after Facebook, if you actually think about it, that Zuckerberg has successfully built and then also shipped to a larger audience. And I gotta say, he did some great acquisitions. So for example, if you look at Instagram, that might be one of the best acquisitions in corporate history, perhaps after YouTube,

• 31:35Speaker 01

  I'm open for that argument. But he basically bought an app for less than a billion dollars. I think it was about 700 million back then because the stock price after their announcement sort of dropped. And now you could make an argument that this app alone is worth about $100 billion. So you have a CEO that, in my opinion, also gets a bit too much of a bad reputation right now, or whenever things are not going that well for Meta. But still, if we talk about AI CapEx, I'm not sure if you remember, but there was a brief moment where Meta was the only Mag7 company that already saw tangible AI monetization. It was about the time that we covered the company for the first time. So it was early this year. And the stock back then traded at about $700 per share. So AI was improving the ad algorithm,

• 32:19Speaker 01

  just as you said. And then what you can look at, which is quite a good metric, is you look both at ad impressions as well as ad prices. And whenever those go up at the same time, you know their business is going quite well. And that's exactly what you saw in Q1 of this year.

• 32:35Speaker 02

  Yeah, we covered that dynamic in our first episode on Meta, which we'll have linked to in the show notes for anybody who wants to go back and listen. But Meta does not set ad prices. Ads are sold in an auction. So the price is whatever advertisers bid. And so that means price and volume are connected, like supply and demand. When Meta opens up a lot of new ad inventory, for example, through a new format like Stories back in 2018 or adding Reels in 2022, supply of ad inventory jumps and then auctions become a little less competitive. And then the average price per ad falls. It's just a supply and demand basic story there. And that always looks scary when it happens in the quarterly numbers,

• 33:16Speaker 02

  but it's actually usually a bullish moment in the cycle because this cheaper inventory attracts more advertisers. Then the targeting improves over time as Meta works on its underlying algorithms. And then you see the bids rise, you know, what advertisers are willing to pay increase. And then a few quarters later, you have both impressions and pricing growing at the same time. And that creates really an incredible twin engine for growth. And so the scarier version actually is the opposite, where you have impressions stalling out and price increases alone carrying revenue. That's really not something we talked about before. Pricing power is a great thing to have, but any business that relies too much on just

• 33:57Speaker 02

  raising prices to drive earnings growth, that can become problematic over time. And it's the same in advertising. Effectively means that the auction is being squeezed rather than expanded. And that hampers their earnings power longer term.

• 34:13Speaker 01

  There's a slight catch to that, though, which I think is worth mentioning. So the two most important factors, as we talked about, are ad impressions and also ad prices. In the best case, as you said, both of them grow simultaneously. But due to the auction dynamic that you just described, that's not often the case. There are two ways, though, that ad impressions can grow. So either Instagram is simply showing you more ads. So for an example, let's say you spend 20 minutes on the platform and then you go through, let's say, 20 posts and you've got four ads shown on those 20 posts. That could be increased to five ads rate. The other way for impression growth is when users spend more time on the app. So if you spend 30 minutes instead of 20 minutes and you go through 30 posts instead

• 34:55Speaker 01

  of 20, you might be shown ads at the similar frequency, but instead of just being shown five ads, you're now being shown seven ads. So that's the other way. And according to Meta, time spent on Instagram and Facebook grew about 10% in Q1 and Q2 of this year. So that was the major reason for impression growth.

• 35:14Speaker 02

  In theory, that is more sustainable growth, since the general assumption is that you don't want to shove down even more ads into a user's feed. Although, we will still talk about how Meta managed to actually increase ad loads without anyone being annoyed and how they might eventually end up turning every pixel into an ad through the use of AI, which is sort of an incredible thing to consider. And I know that you talk about visiting Instagram only. You like to go there and actually use it as a way for almost product discovery. You like to see the ads there to help you find new stuff. So you could probably speak to that.

• 35:52Speaker 01

  Yeah, that's actually true. And I'm not quite sure what that says about me. But I actually just booked a golf session for my family and I got the idea and the offer through an Instagram ad, I gotta say that. So I don't know, I think it's just generally astonishing how Meta turned ads into content to some extent. I mean, ads used to be these highly annoying banners that only covered, let's say, like 5% of the online screen, or maybe videos that you couldn't click away. But it was always something that you wanted to avoid, right? You wanted to prevent seeing ads. Now, Meta's ads take up the entire screen, basically, if you go on Reels, for example, and nobody's really bothered by that. It sort of feels like ads have just become a part of the content. And of course, it helps

• 36:35Speaker 01

  that, for example, influencers who create most of the content on these platforms are constantly posting ads too. So the line between what is actually content and what are ads is just increasingly blurred. So that helps. But anyway, back to the pricing dynamics, because there's one more thing that I wanted to add. The healthier way to increase ad impressions is obviously to spend more time on Meta's apps. But the other way to increase ad revenue is to play with the pricing. And here again, it might seem like higher prices are generally a negative thing, or perhaps a less sustainable way to grow. But that's only the case because you would say, well, Meta's advertisers are return-driven. So they're not brand advertisers. They don't pay just to get into more eyeballs. For them,

• 37:19Speaker 01

  it's important to make a profit on their ads immediately. So just an example, if they spend $1,000, they want to make, let's say, $1,500. So this would be a 50% return on the price that they paid, or basically the ads that they had. And if ad prices go up, you would think that return goes down. But that doesn't necessarily has to be true. So prices going up is only bad if everything else is equal. So if the ad isn't getting more targeted and isn't getting more effective, well, then you don't want to pay a higher price for the ad. But if the ads become more effective and increase in ad prices doesn't have to reduce the return on ad spend. So again, for example, if the cost per lead

• 38:00Speaker 01

  goes from a dollar to, let's say, a dollar and 10 cents, but the lead spends on average 10% more on the advertised product, then nothing actually changes.

• 38:09Speaker 02

  And AI models actually help to make Meta's ads more effective. They have systems called Andromeda, Gym, and Lattice. And those are the models that rank in Target to find the best ads for every user. They're also the ones that rebuilt Meta's ad targeting after Apple's privacy changes some years ago. And since AI improves their probabilistic prediction abilities, Meta was able to drive up both prices and impressions in Q1 of this year. And unfortunately, though, we don't see that trend continuing into Q2.

• 38:40Speaker 01

  Yeah, I think that's actually a big part of Meta's story. So what I like to do is try to ignore the headlines and sort of the obvious reasons for why stock is down and just try to figure out what else could also cause it. So I'm sort of assuming here that the market is actually smarter than we as value investors sometimes give it credit for and kind of knows something that I would miss just by looking at, let's say, the front page of the New York Times. Because if I do that, the lawsuits seem to be the reason for why the stock is down and potentially also the CapEx, which the sentiment about that changes every single time or every single week in the markets. But I think there's something else. Because again, I think Meta reached $700 per share earlier this year,

• 39:21Speaker 01

  even though everyone knew that CapEx would likely be higher than expected. And I think what changed was the AI ad algorithm narrative. So as you said, in Q1, it looked like Meta was the only company with an actual real tangible payout. So you have this $200 billion ads business and apparently AI makes it much more efficient. That was the narrative. But that narrative, as you just said, was a bit harder to support in Q2, where ad pricing has driven much of the growth and impressions in the most important markets actually lack. So worldwide, if we look at the numbers, impressions actually grew 14% and prices grew 12%, which looks pretty good. However, if you split that up a region, the US and

• 40:02Speaker 01

  Canada saw only 9% growth in impressions and prices jumped 20%. And then in Asia, impressions were up 17% and prices were up just 1%. So I know that's a lot of numbers, but to me, that discrepancy suggests that pricing growth in the US is likely not going to be because the ads are actually becoming more effective, but rather that Meta is sort of reducing advertisers' return, sort of the dynamic that we just discussed. Otherwise, I think why wouldn't prices also grow faster in Asia, assuming that there are no changes to the ad algorithms or the regulation in just one geography? I didn't hear any of that. So I have to assume that Meta's sort of turning the dial in North America to get growth there right now.

• 40:47Speaker 02

  And we should also say that this is not the most sustainable way to grow. As we've mentioned, it's generally an advantage, though, that Meta can turn these dials when they need to, right? When organic growth is a little bit slower, which can perhaps be simply due to just economic cyclicality, the ad load dial can be turned. And for a quarter, you get an additional ad shown and voila, you're back to 20% plus growth again. And many companies would love to have a dial like that, that they can tap into so easily at their disposal. Going to another topic, how about we discuss WhatsApp? And last time we talked about the vision for AI agents within WhatsApp as being this

• 41:28Speaker 02

  prolific business opportunity where the agents could help small businesses all over the world become much more efficient. And it's because a lot of folks communicate with businesses over WhatsApp in different parts of the world, which is sort of a foreign concept to me here in the US. But I've certainly learned to understand how different people use WhatsApp. And this seems to be sort of the preferred way to monetize WhatsApp is by doing some sort of B2B service as opposed to advertising.

• 41:58Speaker 01

  Yes, and I think I've become more bullish on WhatsApp's outlook because just as you said, the entire concept last time was a bit foreign to me. I use WhatsApp a lot, but I never use it to talk to businesses. So it was sort of difficult for me to understand this sort of monetization layer because despite, again, being WhatsApp power user, if that even exists, there are very few business accounts here in Germany. And I think last time I talked about that there's just a cultural difference where I wouldn't want any business account between my personal messages. And I just couldn't imagine how that works out. But I don't know, I mean, just not popular to use them. And I think many American analysts or investors just look at the overall user number of WhatsApp because they don't use the app at all. And then assume you can scale the success of some countries to all others.

• 42:43Speaker 01

  And because of my experience, I'm just not sure whether you can actually do that. That said, though, I think WhatsApp has been very successful in India and some other Southeast Asian countries. And Zuckerberg has actually pointed out in an interview, and I found that quite astonishing, that Thailand and Vietnam rank about sixth and seventh among Meta's countries by revenue, while by GDP, they are somewhere in the 30s range. So the reason is that business messaging apparently is a huge part in those countries. And something like 2% of Thailand's GDP flows through commerce on Meta's messaging apps, which is just an insane fact to me. And in those markets, businesses basically run their entire sales and customer service

• 43:26Speaker 01

  through chat, which could be WhatsApp, but it could also be Facebook. And it works there. And that's something that we discussed last time. Labor is cheap enough to have actual humans answering the messages all day.

• 43:38Speaker 02

  That's where AI agents can potentially help remove some of the frictions that make the economics work better in countries like Germany and the rest of Europe and maybe the US, even though there is a much smaller user base in the US. And so the plan would be to give every one of those 100 million small and medium businesses that already work with Meta, give them an AI agent that handles sales and support questions. And the way this would be monetized is likely through a cut of the incremental conversions that they're able to drive. And so the advantage of expanding into developed markets obviously is that there's higher ARPUs. The average of revenue per user is much higher because median incomes in those countries are much higher.

• 44:20Speaker 02

  And so even at a lower level of penetration, Meta could make the same amount of money or more in the US or Europe as it does in emerging markets where there's certainly much more usage of WhatsApp in this way.

• 44:33Speaker 01

  Zuckerberg also personally gave an update in the latest earnings call on the progress of WhatsApp and sort of its future importance to Meta. And I think the best thing that we can do is just listen to what he said.

• 44:44Speaker 03

  I'm also very excited about our progress with business agents. We made Meta business agents available globally this quarter on WhatsApp and Messenger. And there are already more than 1 million businesses using them to talk to their customers or complete sales every week. We're rolling business agents out on Instagram now, too. One interesting thing about having an agent talk to your customers every day is that it learns over time and can bring all of those insights back to you. So we're building more agentic capabilities to summarize all of these conversations, digest what happened overnight, and surface what customers are asking for. And soon it'll go further, including suggesting ways to grow your business, giving you competitive intelligence and real-time insights into what's working and what's not.

• 45:29Speaker 03

  And over time, we'd like to build this into a business in a box service that can help you start and run a whole business using Meta's platforms.

• 45:37Speaker 01

  And just for the sake of completeness, Meta is also integrating ads into WhatsApp, but only in the status feature. And while Meta claims that the status feature has about 1.5 billion users, I think it's definitely not a big thing here in Germany. And I think it's also a trend where mostly old people are using it. And I don't want to put an age range on it, but probably people over the age of 50. So the majority of ad revenue there is, once again, coming from lower ARPU markets, or at least the sort of people that don't use the app too often. Let's take a quick break and hear from today's sponsors.

• 46:12Speaker 02

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• 49:11Speaker 01

  All right, back to the show.

• 49:13Speaker 02

  I think this goes back to an earlier point that Zuckerberg is sort of bored by the ads business personally. And then he wants to get more involved in his users' lives as well as the enterprise business world. And if that's what it takes, and this is what they have to do, because you wouldn't need to spend $150 billion on CapEx for simply improving ad algorithms with AI, right? Meta could likely spend 20% of that and remain this incredible cash printing machine with actually improving economics on their advertising business. And then maybe the stock could trade at double today's prices. That's the way Apple has approached things, without exactly wanting to bet big on investing in LLMs.

• 49:55Speaker 02

  But the reason Meta needs this CapEx is for Zuckerberg's personal superintelligence idea, if we want to call it that. And so he envisions everyone having a continuous, personalized AI assistant that understands their specific goals, health, relationships, career, and finances. But that level of AI would also give him the opportunity to play in the enterprise space, which is why the entire cloud business debate came up in the first place.

• 50:22Speaker 01

  There's a pretty interesting article that Zuckerberg wrote, and I'll link to it in the show notes. So everybody who is just interested in how he thinks about it should likely check that out. And I think one of the most important things for this vision is basically the new model, the new LLM that Meta has built, and that is called MewSpark. And they have no chance of expanding into the enterprise space if they can't offer what is a frontier model, or at least one that is almost as good as a frontier model. And that's just because you need a suite of AI-powered tools that sort of support the cloud. But it's not only about the enterprise space, right? You have superintelligence as basically this personal assistant. And you also need the right hardware to do that because Zuckerberg thinks of these agents,

• 51:05Speaker 01

  as you just mentioned, as something basically that understands you very well and that can help you on a highly personalized level with everything that you do. And as we talked about in last episodes, it seems that the most important thing by now for LLMs is the harness that is working. And so basically the context that you give it. So if you control the hardware plus the LLM, that's incredibly valuable to a company. And what better hardware for, you know, that vision than, I'll actually let you take a guess what it could be.

• 51:34Speaker 02

  Oh, boy. I think we're back to talking glasses, huh?

• 51:38Speaker 01

  We are back to talking glasses. That's right. And you know, I recently listened to the Sam Altman interview on David Zanras show, and I think I talked to you about it. And he basically said that he expected AI to have a much larger impact by now than it actually had. And he said that GPT four was already capable of basically replacing most SaaS companies. But that inertia was just too strong and there wasn't really this iPhone moment yet that AI needs. And the last part is sort of why I bring it up here, because I think that Zuckerberg believes that AR glasses are the iPhone moment for personalized AI.

• 52:14Speaker 01

  And while I would definitely not classify myself as a visionary, I just can't shake the feeling that he might be eventually right with that sort of vision in his head. I do think glasses are the best fit for at least everyday hardware, at least if the product is well thought out. And obviously that could take a long time. That said, I believe we discussed this last time. I could totally see a future in which Meta is spending tens, even hundreds of billions of dollars on that vision. And then in 10 years' time, when the technology might actually be there, Apple, for example, takes over and does what it does best, which is to build hardware for consumers. And I think that Meta has some powerful patents. We talked about this before the call.

• 52:57Speaker 01

  For example, they have this wristband that we also talked about when we first covered Meta. So if you want to understand how it works, I would advise you to go back to that episode after listening to this. And basically, to give you a summary, Apple's Vision Pro works with cameras at the bottom that basically track your hands. So that's not a great solution because as soon as it is dark or you might just have your hands in your pockets, you basically can't use the Vision Pro anymore. With Meta's wristband, you are controlling the glasses much easier and you know, the glasses don't need to see your hands all the time. So this is by many experts considered to be the way to go for AR glasses. And Meta has a patent on that. It's not just something that any other company could copy.

• 53:39Speaker 02

  I think this is more or less just Apple being Apple, right? The iPod was not the first MP3 player. The iPhone was not the first smartphone. The Apple Watch was not the first smartwatch and AirPods were certainly not the first wireless earbuds. And so Apple has never really once pioneered a category, right? Their entire playbook is to let others prove the market exists, let them make the early mistakes and then show up years later with the polished version and the strongest brand in consumer tech. So that's why it was so interesting that they really did try to pioneer the category with these Vision Pro goggles. And so right now, the interesting dynamic is that Apple is taking the exact opposite approach to Meta.

• 54:23Speaker 02

  They're not spending anywhere near as much on AI as Meta or any of the other tech giants. And they stopped any of their plans for AR or VR glasses. The Vision Pro was a flop, unfortunately, and almost as if they gave it a try and sort of figured it out, you know? Hey, no, the world is not there yet with these glasses. Let's let other people figure out AR and VR.

• 54:47Speaker 01

  And it's quite interesting because you know, the two of us, we talked about this vision with Snapchat and then also the first time with Meta. And one thing that we just don't know and we have to figure out over time is what exactly and who exactly are the glasses for, right? I mean, you, for example, you don't see yourself wearing any glasses. I wear them, you know, since I was born, basically. So I could certainly see myself wear glasses. But then the question is, what could the glasses do that you can't do easier just using your iPhone, right? I think it's sort of about the incremental value that these glasses can give to you. And that's something that you still have to figure out. I mean, AI could change a lot of things. But there's certainly a debate about who actually needs these glasses. I mean, obviously, you know, people are into tech. They just like the idea of that existing.

• 55:30Speaker 01

  But is there actually a mass market where you can actually, you know, sell this to a billion people or more? That's still to figure out. But I would say on a positive note, it could also be that Apple is wrong and glasses will be the next generation of hardware. And the technology advancement that Meta is making today will give them enough of a lead to win over that category. And I initially thought that Meta might have a hard time dominating this hardware because they can't offer a larger ecosystem with it. For example, I mean, Google Android XR glasses would launch with an entire App Store and you know, the whole Google ecosystem behind them. So we're talking Google Maps in your field of view, you're talking Gmail, Gemini, all that sort of stuff. But I don't think that Meta would even need that.

• 56:13Speaker 01

  I'm also quite unsure whether you need that in AR glasses anyway. I think in VR, that's very helpful, but in an AR experience, you don't want to go through apps anyway. I think there are only a couple of very important features that you want integrated into your AR glasses. And I think Meta can create all of those and I think they just need to work without opening an app. I mean, if I just think about opening an app in my eyesight and it just takes, you know, half a second, I think that would be way too long. So it has to be a smooth experience that doesn't rip you out of what you're currently doing.

• 56:45Speaker 02

  Another problem that I think very much only got bigger for Meta's reputation. And we worried last time that consumers might just not trust Meta enough to want to put their glasses on their noses. And after all the lawsuits and bad publicity that Meta has seen, basically really every couple of years, even after the rebrand, it feels all the more likely for this to be a valid concern. And beyond that, when I think about what a platform does, it does strike me as sort of being the complete opposite of what Meta is good at. A platform features third parties and takes a toll. So an advertising business's job is to fill the screen with content, capture the user's content and sell it.

• 57:27Speaker 02

  So I do wonder, you sounded quite bullish on the combination of AI and glasses for Meta and maybe now not so much anymore. So I'm curious about that. And I have to admit, I have wanted to personally try out the Meta Ray-Bans glasses at least.

• 57:42Speaker 01

  Oh, wow. So maybe we will actually see you with glasses in 10 years' time that are Meta branded. But to your point, I mean, I go back and forth on it. I think my vision for why they could work is just a bit different. So for example, what if AI doesn't give Zuckerberg his platform that he so desperately wants? But instead, it just sort of transforms the ad business into something that is even greater than it is today. And it wouldn't be the first time that Zuckerberg is sort of forced into his luck. And I don't know, let's say you see a photo, for example, you know, it could be an influencer, it could be a friend or whoever. And there's a sweater in that photo that you like. Now today, that sweater is just part of the photo, but it basically generates no revenue for Meta, obviously.

• 58:24Speaker 01

  Now imagine you can just ask the AI right there in the app where that sweater is from. And it doesn't just tell you, it also, you know, links to the shop. And if you want it, you can just buy it. It's two taps, costs you a couple of seconds. And then the seller basically pays Meta for the conversion to that product. And potentially brands just generally pay Meta for the right and the option to be named and come up in these, at least AI-generated photos where Meta has the right to own the content. I'm sure there are many ways to monetize that, but the point is that sweater was never uploaded as an ad. So nobody tacked it. There was no advertiser paying, you know, anyone an influencer, for example, for placement. But still, AI sort of turned this into ad space.

• 59:08Speaker 01

  And I think that would turn pretty much every object in every photo and in every video on the platform into potentially ad inventory. And that's arguably the last step to just completely blur the line between content and ads that we discussed earlier.

• 59:23Speaker 02

  And that doesn't only apply to AI-generated content, right? I mean, this basically would apply to every single photo that's posted.

• 59:31Speaker 01

  Yeah, there's probably more of a problem with like the rights and everything, but that can be figured out. And potentially, and that goes back to the glasses, I could see that also sort of be, you know, a product for the Meta glasses. Everything you see in real life is technically only one ask and a click away from becoming a product to some extent. And I know this sounds quite dystopian. We talked about it before, but I think it's more of a question of how do you do it? Whether should you do it in general? And I think Zuckerberg always talks about that, you know, the most important thing for the glasses is that they are good glasses first and that they don't seem intrusive in daily life. And that's very much the point here. And I don't know, I would love to have a feature like that, you know?

• 1:00:10Speaker 01

  Of course, only for like five to 10% of the day, but the rest of the time, I don't want any buttons spammed into my little eyesight. And we could argue that maybe the incentive of a, you know, ad platform is not perfect to push out these glasses.

• 1:00:24Speaker 02

  It just feels very Black Mirror adjacent. I think there's an argument to make. And you mentioned it earlier when we were chatting that the iPhone is perfect because even if you use it 10 hours a day, you can just put it away. And it feels in the best case like a very conscious decision to pull it out and go on Instagram. And glasses are different though, right? There are 2 billion people in the world who wear them every day. And you said yourself that the first thing you do in the morning is reach your glasses. And the last thing you do in the evening is take them off. And so it's sort of a personal space that might just not be made for a product like AR glasses. So you don't want ads being literally shoved into your face as you're laying in bed at night.

• 1:01:08Speaker 01

  And one good point that you made at some point, which is still stuck in my head is that out of those 2 billion people that wear glasses, obviously a lot of them are prescription glasses and some of them are quite complex. So you also got to ask yourself, who's the customer? Like there are people who just don't want to wear glasses at all. So they are not your customer. Then out of those 2 billion people who are potential customers, a lot of them were just not able to wear those glasses because of the prescription. So obviously that's just, you know, a matter of time to figure it out, but that's sort of the point. If you spend tens of billions of dollars on it and I just can't see it happening in the next 10 or 20 years, that's sort of a problem. And obviously I don't want to go back to the lawsuits, but the big difference between Meta and other big tech is the fact that they are an ad company, right?

• 1:01:52Speaker 01

  And every advertiser's most important incentive or currency is engagement. And that's why, you know, elbows feed you a lot of negative stuff. And that's why every Meta product focused on consumers comes with at least some sort of questionable incentives. And if we just forget about the glasses and sort of go back to the idea that AI can turn every pixel of your screen into an ad, I think that makes me quite excited as a shareholder. The feed was more or less saturated years ago, then you had stories and that's also to some extent saturated. And then obviously reels were coming, but also maturing to some extent. And those new AI ads, and I think that's important to understand. There would not only be new inventory for Meta, there would be a huge jump because it's basically infinite content. And I talked about it before.

• 1:02:36Speaker 01

  If you think that ads is a good business to be in, and there's more and more of that in the future, you sort of want to own the aggregator of that, right? It's similar to the Uber argument. If you think AVs will become a bigger and bigger thing, but it's commoditized, what you want to own is the aggregator of AVs. And I sort of think about this in the same way. So the most bullish thing about this is that there's an immediate payoff from AI in what Meta is doing best, and that still is ads. And you don't need superintelligence or the next computing platform or cloud business and all of that. It's just better algos and more inventory, and that would technically be enough.

• 1:03:11Speaker 02

  Overall, it's like super promising, of course. But when we're talking about the supply and demand of ads and how that balances toward the price that comes out at auction. If we have the biggest jump ever, that you said basically infinite in the supply of ad inventory, I don't know what that does to prices and how that ultimately affects Meta's business. I mean, I think on net it is of course a good thing, and it won't actually be an infinite increase. But still, it's sort of an interesting question to think through of how such a dramatic increase in ad inventory could work against them by really imbalancing supply and demand.

• 1:03:52Speaker 02

  So let's get to exactly talking about these broader visions of what Meta wants to do with AI and the capex that's going to be involved in that. And as you said, capex for this year will be $130 to $145 billion, maybe as much as $200 billion next year. And I think what the market is currently scared of is that Meta is trying to justify its AI spend through the platform vision we discussed, but also through Zuckerberg's enterprise vision, meaning Muse Spark, superintelligence and gigawatt clusters, which are just mega data centers, basically. All of that is unproven. And given Meta's track record on expanding outside ads, I would say it's highly uncertain how these will work out.

• 1:04:35Speaker 02

  And so in the latest earnings call, Zuckerberg said this when asked about the enterprise vision.

• 1:04:40Speaker 03

  I think that the enterprise opportunity is kind of the sum of all of these different things. It's not just the selling compute. Also, the API services, the productivity services, the kind of business agents for other parts of the business beyond marketing are all parts of the overall offering. And I think that there's just a very, very large opportunity there. So we're quite focused on that. That's going to be somewhat of a new muscle that we build as a company. But I think it's a very important one that we build so that way we can make sure that we can maximize the opportunity ahead of us.

• 1:05:13Speaker 02

  I think the problem with this is that Zuckerberg has never proved to really be a good go-to-market guy or somebody who knows how to build products that people want, besides initially what he did with Facebook. And when he is now giving such a vague answer that basically includes everything you can imagine to try and justify hundreds of billions of dollars in capital expenditures, I just don't find that to be a satisfactory answer.

• 1:05:39Speaker 01

  That's also what the market thinks. And I think if Zuckerberg just wanted the stock too early, as you said earlier, he would just cut capex in half and frame Meta as this advertising beast that it certainly is. And I think that would be a much better story to tell about using AI for ads, which again, we know they can do that. And in fact, for the longest time, Zuckerberg argued against Meta having a cloud business, saying that the marginal return on a GPU has always been higher when using it internally for Meta's own products than renting it out to a third party, basically. So the question now is, what changed about this? Because we all heard about them potentially selling compute. And I guess there are two ways to look at that. And the first, and probably also more bearish take,

• 1:06:22Speaker 01

  is that Zuckerberg just decided that winning AI is so existential that he spends first and then asks questions later, which I think you could argue this is exactly what happened. And also, you have to figure out how to monetize later. And this would fit his argument that he would rather overspend than wake up being disrupted. And this narrative would also mean that selling excess compute is sort of more of a margin of safety scenario than an actual cloud business plan. And the other option would be that it's sort of a more long-term plan for Meta to turn into an enterprise company. But, and I think this should be mentioned, this would take more than just some excess compute, right? To compete with Google, to compete with Amazon, Microsoft, all of those companies, the hyperscalers, as we've now learned,

• 1:07:07Speaker 01

  Meta would need an ecosystem that makes it attractive to choose it over all the other cloud providers.

• 1:07:14Speaker 02

  You could also say that Meta needs to defend and justify all the capex to the market. And then if their bigger vision is years off, they've got to be able to do something today to provide some returns on capital, hence the move to selling compute as a cloud service. But let me ask you, I mean, what would the enterprise system actually look like? Selling excess compute might work in this environment because you have this massive imbalance between demand outweighing supply. But that is more of a short-term reality. With everyone and their mother building a data center right now, it seems pretty likely that in two years from now, or whatever the timeline is, we'll be talking about how there's so much more supply than demand, and things will flip the other way.

• 1:07:56Speaker 01

  Which is why you need to build a natural ecosystem right now. And I think the chips and the data centers are sort of the bottom of the enterprise stack. And then these LLM models, so for example, Muse Spark right now, they would be the developer layer. This is where they spin off new apps. And basically, if you follow Meta, they will talk about new apps all the time and how easy it has become through AI to get these new developments out there and to give it to coders and all of that. So that's why I said you need a frontier model to even compete with any of the other clouds. And that's where you build the tools. And then on top of all that, you also need a sales force and support contacts and so on. And in the era of AI, the fastest way to pull customers up to that stack has been the model, right? This is basically what we've seen in the last one or two years.

• 1:08:40Speaker 01

  I think there's an argument to make that by now, people sort of know that this is a more commoditized play. So it's not a huge benefit anymore to be sort of in talks on business with Anthropic or OpenAI. I mean, Microsoft benefited a lot early on from being or using OpenAI's models. And then Google Cloud is currently exploding due to Gemini. You see that in the earnings. Then Amazon is partnered with Anthropic. And Meta is sort of the only company that is not partnered with OpenAI or Anthropic, which, to be completely honest, might even be an advantage by now. I think there's no circular financing. There are no stakes in trillion-dollar companies that never earn a dime of cash flow. I think currently, how the market thinks about it, this might even be a positive.

• 1:09:22Speaker 01

  And of course, it's also a difference in where the strength of the model that you have lies. So for example, Muse Spark is supposed to be quite good at orchestrating agents, which is not too surprising, given the entire superintelligence and the sort of personalized agents vision that Mark Zuckerberg has. And they're also quite good in creating pictures, which is something that we talked about earlier. If you have hundreds of millions of small businesses, if you can just build an LLM that is supporting them at, for example, creating ad campaigns, that's a huge thing. But Muse Spark is not necessarily good or strong in coding, at least compared to other frontier models, which of course is especially important for the cloud and the tool building parts. And to be fair, Meta brings more to this than some people assume.

• 1:10:06Speaker 01

  I mean, there are features that I don't understand, but some of the software engineers in our mastermind group have talked to me about it. Pytalk, for example, is sort of the framework that basically the entire AI world builds on, which goes from startups to research labs. And that was also created by Meta. And I think by now, it's in a partnership with Linux, if I'm not completely mistaken. So they already own a piece of the developer layer that even companies like Amazon don't own. And they also have their own custom AI chips. And just the fact that they operate on one of the largest computing fleets on the planet for their own apps. So you could at least entertain the idea of all of this and the vision working out.

• 1:10:46Speaker 02

  What doesn't exist are the enterprise connections. Meta has no sales force, no support organization, no compliance track record. And that stuff really can take a long time to build. Google, with all of its engineering brilliance, needed more than a decade and tens of billions of dollars in losses before Google Cloud was something that was really even taken seriously and turned profitable.

• 1:11:08Speaker 01

  Which is, to some extent, why I think that if the enterprise vision works at all, I would expect that sort of the entry point would be not the Fortune 500, but maybe the hundreds of millions of small businesses that I mentioned earlier that already live and sort of exist and make business on WhatsApp and Instagram. I think that's a very much meta way to introduce itself to the enterprise world. And I know it's questionable if that will ever work. And if it does, it's almost certainly something that takes you five to 10 years. But at least then you have a vision for where all that capex is supposed to go.

• 1:11:41Speaker 02

  What's so scary about this capex cycle is that it just seems like there's no way back. Like, we've gone off the cliff. When Meta failed with the Metaverse, Zuckerberg could just say 2023 would be the year of efficiency. They cut costs and they could account for and make up for some of these losses and relatively return to normal. But that is just not the case with the hyperscalers. Should they, given the order of magnitude of liabilities that they're incurring to develop this technology? I recently gave a presentation to members of our mastermind community, which you can find a link to apply for in our show notes below, where I talked about the Mag7 funding these data center build outs.

• 1:12:23Speaker 02

  And I have to admit, seeing the numbers really makes you pause. Alphabet, for example, has about a trillion dollars in off-balance-sheet liabilities alone through leases that haven't started yet and from purchase commitments for things like energy to power those data centers. And this was all coming from a Wall Street Journal reporting deep dive into the topic. And Meta itself is close to $700 billion, which is not so modest. And compared to a year ago, those liabilities have grown about 800% for both companies. And so a good example of how this financing works is with Meta's mega data center in Louisiana. The cost for that data center alone will be tens of billions of dollars.

• 1:13:08Speaker 02

  But instead of putting it on Meta's balance sheet, its financer was called a special purpose vehicle, or SPV. And so it's a fairly complicated concept. And in plain English, Meta and some sort of financing partner will set up a separate company whose only job is to own this one data center. And so the partner, in this case, is actually a company we covered way back when on the podcast, Blueout. They're sort of a private equity and private credit giant. And they're holding the majority of the equity in this SPV. And then Meta keeps a minority stake, so the reported split is something like 80/20. And that separate company, this SPV, then borrows the financing for the construction itself.

• 1:13:50Speaker 02

  So roughly $27 billion of bonds were sold to big institutional investors and to help build this data center. And then Meta signs a long-term lease, pays rent, and basically guarantees that the asset will maintain a minimum value at the end. Because, in other words, Meta is indirectly guaranteeing the credit of the SPV by saying that they are going to be a long-term customer. And then that dramatically improves the SPV's ability to raise debt at a more reasonable interest rate in the markets.

• 1:14:25Speaker 01

  It's definitely not the least complicated concept that I've ever come across. And in case you ask yourself why they do this, there's an additional benefit to just not having that debt on your balance sheet. One of the most important part of it is that you actually tap into just a completely different pool of money. So you now have insurance companies and you have private credit funds that are desperate for exactly this kind of long-dated bond-like exposure to AI infrastructure. And that's a completely different market than, for example, the equity market. And in a world where Meta might need to finance tens of billions, potentially hundreds of billions of dollars, you can see why they would want more than just one funding channel, especially because if you go to the equity markets and you tell everybody, hey, we'll dilute you, that's never a good thing for the markets. And obviously, you will be sold off in the stock market.

• 1:15:10Speaker 01

  So that's a huge part of it. And I also learned, this was quite interesting, I didn't know that before, that this is sort of the classic infrastructure finance. So this is how pipelines, how power plants and telecom networks have been funded for decades. So I think that's somewhat telling that suddenly you have these hyperscalers, you have companies like Meta that are financed like a utility to some extent. And as you said, the scariest part about all of this is that it appears Meta and co, you know, all the other hyperscalers, actually tie two contracts that for many, many years, they will pay money, be it in leases, be it in interest payments, but they will pay money and they will do that whether the AI vision is working out or not.

• 1:15:51Speaker 02

  I think this is going to be, well, I think it's a period that will be studied in business and economic textbooks for many generations to come. How about that's one way to put it? And so on one extreme, for what you could imagine happening, you might say that the most powerful businesses in the world are all hurling themselves off a cliff simultaneously in one collective mania with all these bets on AI. Or on the other extreme, they're using their financial firepower and global dominance in tech to cement their role in one of the biggest productivity breakthroughs in human history. And obviously, that will be quite profitable. So just a little bit of hyperbole there, but those are sort of truly the two ends of the spectrum

• 1:16:34Speaker 02

  that are on people's minds when they're thinking about what's happening. Because all of it really is, I don't want to say unprecedented, but it's at a dramatic, dramatic scale.

• 1:16:44Speaker 01

  It's also just a huge rethinking of these companies, right? I think I mentioned it to you earlier, but if you think about what Amazon did with AWS in the beginning, a lot of people said, you know, the problem with this is you have a highly profitable company, a high-margin business. Now suddenly, you have this huge capex, right? This huge amount of money that you for a very long time, basically without a stop, have to invest in the business. And people were saying, this is probably a low-margin business. Why would I want to own a business that has lower margins instead of higher margins? But obviously, what you need to compare is the absolute amount of money that you can earn and also deploy. If you can deploy tens and hundreds of billions of dollars into a certain segment in your company and you can earn a 10% return on that, that could be much more money

• 1:17:26Speaker 01

  than you'll invest in a capital-light business model where you make a higher return, a higher margin generally, but you can deploy significantly fewer capital. So the way I would see this to some extent is that all of the hyperscalers are now going through what Amazon went through when they sort of pioneered the Google Cloud business, where maybe these businesses will be lower margin going forward, but they can deploy a lot more capital and in absolute terms, make a lot more money than they could five or 10 years ago. And I guess if we just zoom out a little, the most realistic outcome, especially for Meta, is somewhere in between all of the mentioned scenarios here in this episode. So go for the enterprise cloud, rent out a slice of excess compute on short-term contracts, for example,

• 1:18:08Speaker 01

  then focus on internal AI and improving the ad engine and sort of the vision of infinite ad loads, and then build AI agents for the family of apps to support the SMB customer. So if you ask yourself why I build a position despite all the doubts that we're sort of mentioning here about Meta, I think to me, it comes down that I believe Meta is just attractively priced because people see AI spend as sort of black and white. So either Meta's superintelligence and cloud vision all work out and it's a huge success and it's obviously not what the market is currently having a lot of faith in, or it's a huge mistake that costs the company's future because they spend too much money. And I might be naive, that is a possibility, but I think the truth is somewhere in the middle. And if that's the case, I think Meta is attractively valued today.

• 1:18:53Speaker 01

  Although I should say that it's clearly not even close to as much of a bargain as it has been in 2022.

• 1:19:00Speaker 02

  The black and white picture, I think, is a really good analogy for Zuckerberg himself too. I've seen so many comments saying he's one of the worst CEOs in history and that everything he touches fails. And he is probably not the most talented CEO at launching new products, but I'm not sure you can be one of the longest-lasting CEOs and founders in the tech industry and build a $1.5 trillion company if you're just completely incompetent, right? That goes without saying. And I should also add that we own another company that was in a similar position a while ago, and that was Google, right? They once sold off by almost 30% because investors really disliked the idea of Google expanding beyond search and spending money on unrelated things like Gmail, Sheets, Docs, YouTube, and Android.

• 1:19:43Speaker 02

  Beyond that, Google's Other Bets division is also notorious for burning through money at pretty impressive rates. Yet, I don't think you'll find many people today who would say that this was the wrong decision. I'm not saying it will be the same with Meta, but it is a good example of the market can be nervous about uncertainty around large spending of money, although that might be the best long-term decision in some cases.

• 1:20:07Speaker 01

  And we should say, and this sort of goes back to the defense argument, that Meta is vulnerable as long as it is an ads-only business. I mean, I've said somewhat pretentiously that it has an impenetrable mode, but of course, that's never fully true, right? There's an end to everything. And just as much as I love many Instagram ads, it's also a fact that many scammers advertise on Instagram and on Facebook, and you have a lot of AI slop, public resentment towards Meta, and so on. So there are a lot of things that don't go right. And I think there's always potential for a new player in town. And if 2022 has shown us anything, then something like an app, you know, like TikTok, can just come up and also go out to hundreds of millions of people basically overnight. And Meta won't be able just to buy any of those competitors today.

• 1:20:52Speaker 01

  They might have done so 10 or 20 years ago. Today, there would be a lot of regulation around it. So they have to be cautious not to become a victim of the innovator's dilemma.

• 1:21:01Speaker 02

  So when we did a revisit of Uber a couple of weeks ago, I didn't put together an updated valuation primarily because I thought things in some sense hadn't changed too fundamentally. Not that the financial situation hadn't changed, right? Uber has compounded its earnings and retained value a great deal, but more so that we already felt very confident in wanting to own Uber and we thought only good things had transpired in the last year. So we didn't need a model to tell us whether we should own Uber or not. I have a feeling that things are different here with Meta and we should maybe think about the modeling side of things a bit because we have split conviction on it.

• 1:21:39Speaker 01

  Yeah, I would say that feeling is quite accurate. So I decided to build a model that's slightly more detailed this time, simply because you know, you have all this depreciation and the schedules there and the capex, e.g., are so enormous that you can't just use averages or perhaps a fixed cash flow conversion. It just wouldn't work for Meta going forward. So in my updated base case, Meta produces basically no free cash flow between 2026 and 2028. We're slightly negative actually in 2026, massively negative in 2027, then we roughly break even in 2028, then only in 2030. So the end of the decade or basically the beginning of the new one, we see close to $90 billion of free cash flow again. And if you want to go through all of the assumptions, please go to our newsletter.

• 1:22:24Speaker 01

  You know, if we have too many numbers here, it's quite complicated. Over there, we can explain a bit more about how we get to all of that. So looking at all three scenarios, the bear, the bull, the base case. In the bear case, capex has been climbing, in my assumptions, to about $230 billion. Margins are basically staying stuck at around 30% and then growth is obviously fading over time. The base case is the ad and messaging story working while capex plateaus at around $200 billion and margins recover to the high 30s at the end of the decade. And then the bull case is the, you know, what we talked about, every pixel turns into an ad thesis working out and that would mean that you have growth near, for example, 20% over the next couple of years.

• 1:23:06Speaker 01

  Margins go back above 40%, capex reaches $200 billion in 2027, but is then declining about 10 to 20 billion a year. And that's sort of the main setup.

• 1:23:17Speaker 02

  So do you expect capex to stay high in all three scenarios? It seems it's hard to imagine otherwise.

• 1:23:24Speaker 01

  Yeah, I think that's just how Meta and most of the other hyperscalers work now. I don't see them stepping back from the capex commitments that they have done. So my basic assumption now is that you will have hundreds of billions that will be paid out and you now sort of have to see how that impacts the valuation. So in this case, it also means just putting a multiple on the 2030 cash flow per share isn't really accurate because by 2030, depreciation from today's spending is already crushing margins, but 2030 free cash flow is still also reduced by that year's $190 billion of capex. So that method would sort of charge for the build out twice and you wouldn't stop. You don't get to a normalized level. So I decided to go, and it doesn't get less complex, with three different terminal value

• 1:24:09Speaker 01

  approaches this time. So first, we do take my old free cash flow multiple method, which effectively assumes the capex number normalizes because of the multiple on depressed margins and cash flows. In the second approach, we also use a multiple, but we do assume sort of a normalized capex in 2030 and thus also normalized margins and cash flows. And normalized in this case means that I've just made an assumption on the capex to depreciation and amortization ratio that we have seen historically. Again, more details will follow in the newsletter, but if I expand it this year, it would just get way too boring. And the third version is a plain PE on 2030 earnings, perhaps the easiest, perhaps also

• 1:24:50Speaker 01

  my preferred way, because depreciation already runs through the cost of the build out and through earnings. And when you compare all the fair values of these approaches, you would get to a base case fair value, which is somewhere around $650 to $750 per share.

• 1:25:06Speaker 02

  So from my perspective, is this the most obviously compelling moment to buy Meta? Probably not. And I would say that it was much more so in 2022, as you also mentioned. And one of my issues with Meta is that their capex spending just seems so much more speculative than Alphabet and Amazon, where they have at least a more plausible explanation for what they'll do with all this computing power that they're investing in. But like you've said, with Meta, they could unlock a lot of value by just embracing what they are and not betting the farm on trying to be some revolutionary AI platform. And that, plus the metaverse stuff, the negative impacts on society, especially for young people and the regulatory effects of that.

• 1:25:48Speaker 02

  And all that to say, I'm not sure the margin of safety is so clearly wide that I feel compelled to buy shares in Meta tomorrow. And honestly, I'd be more excited probably to accumulate shares in Alphabet or Amazon with any incremental capital we invest or some of the other great businesses we already own, which is not to say I don't think Meta won't do incredibly well. I'm sure that they probably will do well. It's not a business that I want to bet against, but the question is, relative to our other opportunities, is this the best place to invest an incremental dollar of capital at this exact moment in time? And I don't know, I don't think I'm sold on it yet, but maybe I'll eventually get there.

• 1:26:28Speaker 01

  I think that skepticism is quite fair. To be honest, I got to say that I might've come out of my research slightly less bullish than when I actually went into it. And I think a common argument right now is that Meta is the max seven with potentially the most optionality, especially given its valuation and everything that Mark Zuckerberg is putting out there that could potentially work out for Meta in the future. I would generally agree with that. I think there's a lot of stuff that we couldn't even get to today. So for example, Meta just launched a new marketplace app called Seller on Facebook. And also there's a lot of optionality for Meta's Mewspark LLM, where I quickly mentioned it today, it comes into ad creation for Meta customers, right? There are immediately millions and millions of customers and a lot of margin to make.

• 1:27:11Speaker 01

  However, all of that optionality comes at a high price, not necessarily in terms of the stock price, but primarily because of all the capex and also all the lawsuits that we will still see in the future. And the things Zuckerberg spends the most money on, it kind of seems like they are the most uncertain. I could really see how AR glasses take another decade before they actually become mainstream, if they ever do. And that can mean tens of billions of dollars in investments until that point. And the cloud and the superintelligence ambitions, they will probably take even more money and potentially the same amount of time. So I'm not sure. You have a margin of safety there because you can sell access compute, but this is not really an exciting way to, you know, invest in the stock.

• 1:27:53Speaker 01

  And what I liked about Meta before is that if none of this works out, you are left with the biggest and most profitable advertising business in the world. But looking at all these long-term obligations that especially you pointed out, I think there's a risk that the business will be dragged down for a very long time. And I will definitely not sell any of my shares in my personal account, but I won't push you and Kyle to own it into the intrinsic value portfolio either, because I think you're not fully convinced. And I know that Kyle has, you know, a strong opinion on the questionable capital allocation decisions made by Mark Zuckerberg. And to him, that's always a sort of a no-go, as he told us before. All right. And with that, let me close it for today with a quote by, who else?

• 1:28:34Speaker 01

  Mark Zuckerberg, that might also explain his constant urge to spend and reinvent Meta to some extent. He said, "The biggest risk is not taking any risk. And in a world that is changing really quickly, the only strategy that is guaranteed to fail is not taking risks." And with that, and to this episode, see you all in the next one.

• 1:28:56Speaker 00

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• 1:29:39Speaker 00

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