The 1.1 Trillion Dollar Penny StockI have three major principles in my life. The first is the Golden Rule, the holiest of all rules. Treat others the way I want to be treated. The second major principle is "holla holla get dolla", which is a really fun way to say respect the hustle, respect other's choices in life. Naturally, my third is that Rome was strongest with the triumvirate. All of this to say that when I act a fool, I expect others to tell me and moderate - this is the natural evolutionary cycle of social structures. It is of absolute sociological importance for bad behaviour to be called out. Jedi Blue, Suckerberg's Metaquest to find a friend, an inability to refinance debt, the real web3.0, and the literal heat-death of Facebook's geriatric population all spell doom for an over-glorified penny stock.
First, what exactly was Wall Street thinking letting a GeoCities RSS feed for people's feelings get to a $1.1 TRILLION dollar market cap? It is difficult to explain the need for controlling health care inflation when the same economy is more than happy to offer debt to a business incapable of making a profit at valuations well into the hundreds of billions of dollars. Fine, the bubble popped. A lot of people, pensioners, and sovereign treasuries lost a lot of money. But for Facebook it's a little bit more severe. Facebook has around $10 billion in long-term debt, debt that is most assuredly used to recycling at the lowest interest rates possible garnered by free government money. What starts as a few billion recycling at ~4-6% per year starts finding draining liquidity in corporate bond markets making it hard to offer debt at 10+%. Meanwhile, real world inflation driving up operating costs for office, labour, and servers force bigger and bigger debt offerings to less and less willing parties. Advertising growth declines and degrades as advertisers suffer in recessionary markets. Plus the $10 billion in long-term debt is nothing compared to carrying $16 billion in floating accrued expenses -think cycling debt among credit cards, $15 billion in "deferred revenue"- as if renaming fake profits makes it more real, and a $7.5 billion mixed bag debt growing by $250 million a quarter. There is a funny saying that owing the bank a hundred dollars makes it your problem, owing the bank a hundred million dollars makes it theirs. Banks are reanalyzing their tail-risk models for profit and capital margins. Forgoing the mysterious $84 billion a year in revenue, Facebook burned $62 billion this year alone. A decrease in real revenue is an undertone to out of control costs that needed to be dealt with a decade ago. All of which are suddenly important.
Facebook's interdimensional turn to the Metaverse at investor expense in the billions with no plan to stop illustrates an Executive board that isn't controlling risk or managing direction. Removing Zuckerberg won't be easy, if at all possible. Facebook can change it's name all it wants, but there is one person in power. The public aren't the only ones harbouring negative feelings for Zuckerberg and his company; various US and International legal groups have been launching investigations and lawsuits against Facebook, Facebook's Directors, and Zuckerberg personally. The FTC won a $5 billion charge against Facebook in 2020 in relation to selling user's personal data. Now the FTC is against the very fabric of Facebook: Illegal Monopolization via uncompetitive acquisitions to be resolved by shedding Instagram, WhatsApp, and more. Facebook has attempted to dismiss it twice, failed on both counts, and is now pushing for a delay in trial - something unlikely to happen. Intertwine a multi-state and multi-country investigation into Google & Facebook's "Jedi Blue" collusion, research reports codifying the bad return on investments of digital ad spend, especially on Facebook, and it starts to look like a crisis of confidence in an entire business model. Google has been in a constant battle regarding it's own Monopoly and the power of pricing that comes with it, most ending with a corporate-win inside the United States. While Republicans' hatred against Big-Tech is more bark than bite, certain lawsuits in Republican-driven states pose the probability of a big loss for big brother business. However, the EU investigation into Jedi Blue is far more likely to create a material change in ad pricing. The basics are this: Facebook and Google agreed on a floor of pricing ads, thus forcing companies to pay more than in a free and competitive market. While this isn't surprising, it is illegal - making materially impactful fines and pricing changes a very likely outcome within the next few years, again all enhanced by a global recession.
Invoke the Laws of the Monthly Active Users and bequeath one billion dollars. Or just know that internally-verified MAU's are on par with Allianz SE returns. Facebook claims 3 billion monthly active unique users of whom 500 million joined since COVID in Q1 2020. The underlying growth trend shows nearly perfect linear growth from 2008 to 2020, and logarithmic post. Without the ability to predict the future, Facebook is sitting at a 1% annual growth rate over 2 years on a statistic that only they can confirm. Facebook knows growth has stalled and will turn negative, if it hasn't already, all leading up to the dramatic need for Facebook to CREATE a UNIQUE digital space to bring in NEW users. Where Facebook claims Horizon Worlds is only a $1.2 billion failure, R&D costs are up $8 billion in the same 9-month period YoY. But the failure aspect is correct, as Horizon Worlds has failed to breach 200,000 unique users with a recent investigation showing a general localized environmental userbase <50 people. This analyst won't fault the metaverse for this failure. Facebook isn't just uncool and unpopular, they are reviled in a way that only a new generation can do. If Web3.0 is about decentralization against mass-control, there are few homo sapiens lizard-people that have earned such hysterics as Zuckerberg.
One final inspection of their public accounting records leaves one final question: how much longer can Facebook run? With just under 50% of cash equivalents in corporate debt securities with an 8% unrealized loss in a year, paired to a $2.3 billion or 14% degradation of the Corporate Treasury in the past 9 months, what is the game plan? Facebook is looking at $2+ billion per year in increased costs to refinance debt at minimum, that is if they find a bid. The company has burned more on a Metaverse catering to no one, being sued by the FTC to break up the social media conglomerate completely, looking at decreased revenue, decreased value of previous revenue, and a very tangible decline in users amid a digital transformation period brought by a new generation wholly happy to cancel celebrities and companies. There is a growing probability and possibility of a failure for Facebook to maintain debt and business operations without filing for bankruptcy or modification of historic debt. Facebook is a penny stock, at least while it remains listed.
Selected References:
www.sec.gov
www.ftc.gov
www.ftc.gov
www.law360.com
nymag.com
www.chancerydaily.com
www.statista.com
kotaku.com
