Investors are angry at Mark Zuckerberg as the price of meta platforms falls.
Brad Gerstner, CEO of Meta Platform, sent an open letter to the board. Brad Gerstner, the chairman and CEO of Altimeter Capital, implores the business to "go backwards." Prior to the release of the company's third quarter results, the letter was delivered.
Gerstner requests Meta to in the letter that "'Like many firms in a zero-margin market, Meta suffers with too many employees, too many ideas, and too little urgency,' the letter reads. 'Simplify and focus its future operations. Lack of alignment and focus can be fatal when development slows and technology advances, but they are a shadow while growth is easy."
This year, shares of Meta Platform have decreased.
He cited the decrease in Meta Platform's share price and said that the business is considerably underperforming its tech competitors. Meta is the worst-performing FAANG stock and one of the worst losers in the S&P 500, with an annual loss of more than 60%. After last week's rise, Netflix, which had previously been the worst-performing FAANG stock, renounced the distinction.
The market was thrilled with Netflix's third-quarter profits and projections. The market is optimistic about the impending release at the beginning of next month.
The PE multiples for Meta Platform have decreased from 23 to 12 times, according to Gerstner, who also noted that the company's multiples are now significantly lower than those of its rivals. The decline in the share price, he continued, "reflects a lack of trust in the firm and not merely a bad mood in the market."
Investors have pointed questions for Mark Zuckerberg.
Gerstner continued by saying that Meta Platform's main business, which generated operating profits of $45 billion last year, is still performing well. He put up a three-step strategy that, in his estimation, would enable the business to treble its free cash flow to $40 billion annually.
According to Gerstner, Meta Platforms should trim its personnel by 20%, lower yearly capital expenditures to $25 billion from $30 billion, and cap investments in Meta Platforms and Reality Labs at $5 billion or less.
Meta Platforms employs much too many people.
Zuckerburg acknowledged that Meta Platforms has an excessive number of staff. Some staff have also been let go by the corporation, albeit not in the numbers Gerstner thinks. Gerstner argued that lower personnel expenses by the middle of 2021 would be sufficient to justify the 20% decrease in workforce.
Nobody is claiming that Meta won't have enough employees in 2021 to maintain its present operation, he said.
Digital marketing will decline.
As Snap highlighted this week, spending on digital advertising is down. The corporation provided a bleak prediction in addition to missing its sales projection for the third quarter.
"Our revenue growth continued to drop in the third quarter," Snap stated in a letter to shareholders. "This continues to be influenced by a variety of issues we have faced over the last year, including changes in platform policy, macroeconomic hurdles, and greater competition."
"Our advertising partners in a lot of industries are cutting their marketing budgets," he continued, "especially owing to the adverse effect on business, inflationary pressures, and the rising cost of capital."
Cash expenses for Metaverse
Gerstner claims that the investment budget of Meta Platform is excessive and is greater than the sum of the investment budgets of Apple, Tesla, Twitter, Snap, and Uber. We believe the corporation can safely and sensibly restrict capital expenditures while still making significant investments in AI and other crucial areas, he continued.
Additionally, Gerstner recommended that Meta Platforms not spend more than $5 billion year on developing the Meta platform. In order to demonstrate its dedication to the Meta platform, Facebook changed its name to Meta Platforms last year. Last year, the corporation invested over $10 billion in cash into its Metaverse business, and it plans to do the same thing this year. Meta Platforms is now a cost on Metaverse's income statement and has not yet significantly affected the company's sales.
The potential of Metaverse and whether Meta Platforms will dominate the industry are not universally accepted.
There are various challenges for the Meta Platform.
At both the global and micro levels, the Metaplatform confronts several obstacles. The selling of technology shares has also had an impact on the share price of Meta Platform. Additionally, there has been a decline in global expenditure on digital advertising, which has lowered profits for social media firms like Facebook and Snapchat.
Additionally impacted by the iPhone privacy laws is Meta Platforms, which anticipates a $10 billion drop in sales by 2022. Meta Platforms reported sales of $28.82 billion for the second quarter of 2022, a little decrease from the same period the previous year. Since Facebook's first public offering, the firm has never reported a revenue reduction year over year.
The rise of Meta Platforms has halted as a result of macroeconomic predictions.
According to Meta Platforms, the third quarter's sales should be between $26 billion and $28.5 billion, which would represent a fall in revenue for the second straight quarter. The business stated that the negative second-quarter advertising demand was due to "continuing weakness in advertising demand, which we believe is attributable to broader macroeconomic uncertainties."
Wall Street analysts predict that Meta Platforms' third-quarter sales would decrease by more than 4% from the same period last year.
The popularity of Facebook decreased.
Facebook's declining popularity among youngsters, who are switching to TikTok instead, is a major issue. The success of TikTok has also had an impact on YouTube's earnings, thus YouTube is now concentrating on "shorts" to better compete with TikTok. Instagram attempted to introduce a new version for teenagers last year, but American officials prevented it.
The massive investment made by Meta Platforms in creating the metaverse also causes market anxiety. Gerstner writes in his letter that "people don't know exactly what the metaverse entails."
"This uncertainty would not even be a problem," he said, "if the corporation were to invest $1 billion to $2 billion a year in this effort." Instead of the $10–$15 billion that the firm is now aiming for, Gerstner advised Meta Platforms to set a $5 billion yearly investment cap.
But he also said that when Metaversum starts to provide measurable returns, he and other investors would welcome more investment.