META Earnings Breakdown + How Insiders Trade

Ahoy Metamates! 🚢 🏴‍☠️

I was waiting to write the earnings issue - secretly hoping that Mark would trade shares - and he did. FYI: He hasn’t sold a single share in 2 years (and the drama behind why is next level) so this is a pretty substantial development.

This comes at the heels of increased sales from other executives, and some pretty solid developments in Meta’s investment narrative. Outside of Reality Labs, which continues to be a dumpster fire for the time being - although I personally remain very bullish.

In this week’s subscriber only issue:

• The tea on why Mark stopped trading for nearly 2 years ( spoiler: nothing to do with the stock price)

• How much stock each Meta executive is selling and at when

• Key themes from the Earnings Call

• Who does Meta owe $18B to and why?

• Analyst stock price predictions from Goldman, Morgan Stanley etc

• Foreign exchange rates are helping Meta’s stock

• Why we’ll be hearing a lot more on Whats App

• AI’s role in Meta’s revised metaverse strategy

The History Of Meta’s Executive Insider Stock Sales

Its not too long ago that Mark’s trading was so exemplary that the Wall Street Journal wrote an entire expose on it. And then, unexpectedly, he stopped trading for nearly two years. What happened?

Reputation damaging lawsuits happened:

• Mark stopped trading in Nov 2021

• Around the same time, there was a lawsuit against Meta alleging insider trading related to Cambridge Analytica

• It was ultimately dismissed - right at the same time as Mark’s trades halted.

• What very few people know is that there was a second lawsuit in 2021, this time targeting executives and board members directly.

The first lawsuit focused a lot of attention on Mark and Sheryl’s sales in particular but went after the company as a whole.

… and for awhile almost all major executives at Meta, except the GC stopped using 10b5-1 plans, despite the lawsuit being dismissed.

Sales likely stopped bc the second lawsuit was - should I say- a bit more serious. Serious enough for almost the whole exec team to stop trading? Evidently so.

 For starters, the Plaintiff wasn’t some random individual but the state of Rhode Island and the defendants were Facebook’s executives and board as individuals, as well as the company itself. (ultimately a nothingburger, but scared everyone shitless).

It happens to have an entire section of accusations against individual executives and board members:

… and it’s incredibly salacious - some cliff notes in the thread below ( spoiler alert, Meta won this case on a brilliant technicality: basically told the court all the evidence needed for discovery is super extra private and the court somehow said ok).

Mark’s trades this week indicate that he’s back to his regular 10b5-1 trading schedule, selling the same amount of stock each time with a limit price. He’s also using a collective seller plan to gift shares to CZ.

How each exec at Meta is using their 10b5-1 plan in 2023:

• Mark: collective seller plan, 28,009 shares sold with a price limit trigger of over $300

• Jennifer Newstead ( CLO)- plan started again on February 3. Selling 670 shares each time, appears to have no trigger

• Susan Li ( CFO)- plan started again on May 13, Single sale of 30,413 shares. Likely a single trade plan

• Nicholas Clegg- plan started again May 1, has nearly doubled the amount of shares sold since last year. Looks to have a $300 limit

• Boz- Sells quarterly.

• Javier Olivian - appears to sell at market price

Earnings Call Key Themes

We’ve come a long way since last quarter - and AI showing early monetization boosts is helping stock analysts turn a blind eye to Reality Labs bleeding cash uncontrollably with no end in sight. For not at least, Mark has been given a wide birth to spend on the metaverse.

Top line #s to actually care about:

• Reality Labs: $210M revenue, in the negative by $3.4B

• Quest 2 Sales down by 26% QoQ

• Reels drove 40% more Instagram engagement since launch

• It has become expense net neutral, focus on driving revenue in ‘24

• AI: 30 million Llama downloads last month

• 7% increase in time spent on Facebook via AI feed recommendations

• Advantage+ Shopping @ $10B run rate

• Business Messaging at 600M conversations daily cross platform

• 60% of all WhatsApp users in India message a business weekly

• Threads: 100M MAU

Hiring for next year will focus on:

• AI, infrastructure, Reality Labs, and monetization

• Continuing to bring more legal in house

• Headcount is currently down 24% YoY

Unexpected bonus:

• Foreign currency tailwind of 2% anticipated in Q4

Analyst Price Targets & Concerns

We’re back in bull territory 😀

Goldman Sachs : $384.00

• Focusing more on performance outside the US

• Wants to see ROI on data center architecture investments

Morgan Stanley:$375.00

• Cautious about open source model strategy

• Negative on continuing losses in Reality Labs

JP Morgan : $420.00

• Stayed quiet on call, reiterating bull rating

Whats App & Business Messaging Are Coming Forward

While they don’t get reported separately, one of the key undertones of Meta’s press cycle has been the hype around business messaging. My thesis on why here:

and in case you missed the puff piece by NYT this week, also worth a read:

AI - both a tailwind and a headwind

Stock Analysts don’t know quite what to make of AI in general, let alone of Meta’s strategy in particular. That comes with some tricky implications - and the veneer is starting to crack.

Good:

• AI is driving increased engagement and monetization

• Mark continues to allude it will also drive ops efficiency through health tooling

Bad:

• Analysts are struggling with increased infra costs

• That’s compounding with Reality Labs losses

For right now, Brian Nowak at Morgan Stanley is the only one leading a charge against increased data center costs - and he’s also not convinced open source isa good thing. And while Brian is a boomer - he is THE boomer whose skepticism tanked the stock last summer. I think increasing costs in Reality Labs will drive him over the edge early next year unless Meta has a rabbit to pull out of the hat that I’m not aware of.

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