Market Commentary: Underestimate Zuckerberg At Your Peril

Long ago, a conversation between two investors about the sluggish revenues of what was then Facebook went something along the lines of this: With all those users, why isn’t Facebook making more?

To which the second investor replied, do you really think they figured out how to get a billion users on their platform and don’t know how to make money from them?

The investment thesis had yet to play out for Facebook a decade ago but what the second investor was hinting at was the tradeoff Mark Zuckerberg faced back then: grow fast or monetize more. He chose growth over monetization early on to secure a dominant market share and elbow out rivals, but as time went by he was able to turn the dial up on monetization too.

Fast forward a few years and some other tectonic shifts took place that cemented Zuckerberg’s legacy. One in particular is taking place now and those underestimating Zuckerberg should do so at their peril.

Key Points

• Zuckerberg made hugely important strategic decisions that sparked massive growth in Meta over the past decade.
• He is now making another massive bet and investors who underestimate him are likely going to do so at their peril.
• Meta stock is currently valued below analysts consensus estimates.

Zuck’s Big Moves

It’s less than a decade ago, but seems longer, when Mark Zuckerberg announced that he was boldly migrating Facebook from a desktop to a mobile-first platform.

At the time, few grasped the significance and what Zuckerberg had identified. He had spotted the massive adoption of smartphones and knew that’s where the flow of users’ attention would go. He bet the company’s future on the transition and he won.

His next big bet was on the metaverse. He was so convinced of the future of virtual reality that he spent billions on research and development. Though it is widely regarded as a flop, it’s quite possible that Zuckerberg was early. We will find out soon whether the success of Apple’s Vision Pro breaks down the barrier to mainstream adoption of virtual reality.

Regardless of that failure, it’s clear that Zuckerberg isn’t shy about making huge bets on new technologies and deploying massive resources to succeed in those areas. Now Zuckerberg is making another huge bet, on artificial intelligence.

Meta has announced a focus on hiring for AI roles and plans to build out over 600,000 GPUs from Nvidia to supports its ambitions.

These forays don’t represent a new splash in artificial intelligence waters, either. Already it has built out its large language Llama models that can function as conversational assistants. So what does it all mean for Meta stock?

Is Meta a Buy?

An astonishing number of analysts cover Meta, 52 in all, and their consensus estimate for fair value is $492 per share, which sits about 10% higher than where the stock currently trades.

With a $1.1 trillion market capitalization, it’s easy to think the best days of Meta are behind it. Still, the revenue forecast over the next 5 years is slated to grow 10% annually, a massive figure given its size already.

Other metrics from return on equity, 28%,  to return on invested capital, 23.4%, all point to good things for shareholders, particularly on a pullback.

The bottom line is underestimate Mark Zuckerberg at your peril. He may still find a way to produce another trillion dollars of market capitalization over the next decade.