DEI Scandal @ Meta, Temu's Meta Ad Spend, 5 Trends for 2024

Ahoy Metamates! 🚢 🏴‍☠️

What a year it’s been! When I started writing this newsletter ~8 months ago META’s stock was in the gutter @ ~$170. Initially, I thought I’d write this for a few months - mainly to stick it to Brian Nowak @ MS. But somehow, this little newsletter got a life of its own and it’s now being read by a significant portion of Meta’s leadership team, which I never expected.

The pressure is on to make it bigger and better in 2024 🙂 

Some highlights from last year:

🆕 The TLDR This Week:

• Zuckerberg sold nearly half a billion dollars of Meta stock in last two months

• Russia mysteriously lifts millions of fines against Meta - link

• Activist sues Meta over director conflict of interest (link)

DEI Scandal at Meta Finally Concludes

If you’re going to embezzle $4M from Meta as an employee, probably don’t link your personal Paypal to your corporate credit card. After a sordid lawsuit, Barbara Furlow-Smiles, formerly one of the DEI leaders at Meta, admitted to stealing from the company for years to fund her insanely lavish lifestyle.

What’s staggering to me is that this went on for years. Is the expense team at Meta asleep at the wheel? Yes.

• She linked her personal PayPal, Venmo, and Cash App accounts to her Facebook corporate credit cards

• Paid friends, relatives and associates for “DEI services”

• No services were provided. Instead, she pocketed the funds herself

• She created fake expense reports

• Rinse and repeat

• Pocket $4M

Oh- but it gets so much more ridiculous. This woman was 9th degree paranoid of getting discovered, at least according to the DOJ. So she had her friends send her back the money in the physical mail, wrapped in T-shirts. She also went on to recruit a vast network of accomplices - including HER NANNY, make them all DEI vendors at Meta and have them submit fake invoices, then send her the money.

After years of not being caught, she got a little over the top bold, billing Meta for $18k preschool tuition for her child and a $10K specialty portrait (of herself, presumably).

It’s evident she follows her own advice. A quote from a HerAgenda interview: 

“ Get comfortable with investing in yourself.”

Encore:

• Lawsuit transcript here and here

• In case you want to see the sentencing for yourself, it will be on March 3rd.

All Eyes on China - and Meta Ads Library

Meta’s ad revenue going into 2024 is increasingly dependent on China - and vice versa. One of the largest advertising segments driving revenue right now are Chinese resellers like Temu, Shein, etc.

Why are Chinese companies pumping $ into Meta ads?

• Negative -0.5% inflation = China depends on exports

• Surplus of domestic inventory

• Need to access EU and US markets efficiently

How big is this trend?

• GMV at ~$175BN ( est by PSC)

• Exports las year were $3.7T

• $7.7B ad Chinese marketplace spend on Meta ads ( 2.2x YoY) - PSC

Piper Sandler, a leading analyst firm, looked at this data compared to US retailer ad spend - HomeDepot, Visa and Comcast COMBINED spend less in meta ads than DHGate.

This is a two edge sword: on one side, it definitely helps Meta to have this massive spend boost, especially in regions like EU where ad growth has been lackluster historically. Data shows Temu and Shein are heavily focused on Meta ads in Italy, Germany and France.

As a bonus, Chinese resellers like Meta ads because it’s an indirect way for them to compete with Amazon. Temu in particular is a big anti-Amazon bet, with identical items selling @ up to 50% lower prices.

The downside here is: this gravy train won’t last forever. We’ve already seen data of Chinese retailers who have saturated the US market focus ad spend in lower ARPU regions (and, eventually, use other channels like TikTok).

For now at least, PSC analysts believe the Chinese reseller trend may carry Meta stock through 2025.

Encore:

• Read a Piper Sandler Report on Chinese Ecommerce Meta Ad Spend from June here

Six Meta Trends Going into 2024

1) Time spent and DAU on Instagram is increasing at a healthy clip:

2) Monetization of Chatbot ads and Search ( UBS estimates $16B rev opportunity for Meta in the next 3-5 yrs)

• Meta expanding Bing chatbot capabilities into 6 personalities, including travel

• Testing AI in marketplace to help users learn more about products

• Using AI to improve search for Groups, Reels and Marketplace

Helpful datapoint: Snap’s AI chatbot, which was rolled out just a few months before Meta, already has 150M users, roughly ~20% of SNAP’s MAU.

3) The FTC is primed to push on Meta for antitrust again in Q1

• FTC filed the initial monopoly lawsuit against Facebook in Dec ‘20

• Acquisitions of Instagram and WhatsApp main pain point for “monopoly” argument for FTC

• Case is in discovery with news expected in Q1 this year

• This can spook analysts significantly - be mindful of RSU trades in the first open window of ‘24

4) Analysts are Tracking Temu Ad Spend on Meta very closely

• 4 key analysts are regularly pulling ad spend data for TEMU

• As TikTok matures, it is possible this spend will be diverted from Meta

5) Business Messaging to Take More of a Center stage

• I wrote more about this here

6) Reality Labs will come back into analyst focus

• Apple’s much anticipated headset will ignite new analyst interest

• Meta has been able to divert analyst attention from this segment by showcasing progress with AI but that strategy may not work is Apple has a big market pickup

• Analysts are highly skeptical of this segment for Meta.

• Lack of strong market success here can lead to a downgrade in the stock.

  That’s it for today!

  Next week in our subscriber-only issue: Deep research into the VR/AR market with granular data breakdowns and analyst opinions.

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