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Meta's DC Lobby Strategy, Why I'm not Bullish on the stock

Undersea cables, India ambitions and tax lobbying.

Ahoy Metamates! šŸš¢ šŸ“ā€ā˜ ļø

Didnā€™t want to be the 150th person to write a ā€œ Meta stock to the moonā€ post so I took a step back to think through whatā€™s next instead- this issue will focus on the key themes for the stock going into next year and, as a special treat Iā€™ll walk you through Metaā€™s entire government lobby strategy.

Bonus for paid subscribers only on Friday 6/21: full breakdown of stock price trends from every major analyst will drop for paid users only.

Iā€™m NOT bullish on Meta stock right now

1) Legacy employees are too rich

ā€œThis is my last year at Metaā€. - basically everyone who joined during COVID or in late 2022. Massive stock gains + a shift back to grind culture = you donā€™t need to be senior at Meta anymore to make real money. Just keep your head down and survive the next layoff.

Already seeing a talent drain - those who are lazy are going to Google, those who are hungry are starting their own companies. I can throw a rock out my window and hit 5 AI founders who are Meta alumni.

2) A payments play is imminent - and questionable

Meta Pay is predicted to grow 20% this year, despite no one I know using it. A successful execution on payments is going to be critical for the long term vision of business messaging and the metaverse.

  • Thereā€™s already an Amazon partnership that lets users link their account and make instant purchases in-ad

  • In India, PayU and Razorpay are embeded in WhatsApp last year, allowing users to mane in-chat purchases and connect their online banking

Payments is an area where Meta has crashed and burned so many times, I wonā€™t bother listing them out. And, while before this was an interesting side experiment, now itā€™s actually critical. Why? Foreign exchange rates are an issue, % paid to partners and processors cutting into revenue and needing a more flex treasury approach for the region affectionately known ā€œ rest of worldā€.

Meanwhile, Elon quietly built a Venmo for X. If it happens to work when it rolls out, X will go public. Elon vs Mark is a tough call.

3) Analysts growing impatient

Mark has a new wardrobe, Meta IR seems to have broken bread with Morgan Stanley - for all intents and purposes, last few quarters have been chill. While the ā€œour AI powers ads = revenue growthā€ narrative is true, the stock will keep humming along. Right?

The truth is, while analysts are bullish - theyā€™re also very cautious. The stock price prediction spread has narrowed significantly. Which in English means, sh*tā€™s slowing down.

Possibly the worst time for an election year, Apple +Open AI BFF announcement, and NVIDIA dominating the markets. In this narrative, Meta is interesting - but itā€™s slowly getting left behind.

4) The legal bills are piling up - and gumming up the works

From the PM of Australia, the EU, Quebec - and who knows how many other jurisdictions, business outside of the US is a constant stop-and-go with lawsuits. while this is not normally a concern for me, this year is different:

  • Elections will be a ride. 

    In general, election years tend to have stock rallies - and this year thatā€™s compounded by the AI boom. Itā€™s easy to get stock drunk right now:

Itā€™s also been the case historically that CPM pre-and post election looks different:

Source: 2020 election data from Common Threads

Thatā€™s led to a lot of $ - Of every dollar spent on digital platforms during the 2019ā€“2020 election cycle, Meta received 59% and Google made 18%, according to Insider Intelligence.

But this year, Iā€™m not quite sure Metaā€™s intense election ad rules may be a handicap. Iā€™m being shown an ad for a ā€œ Iā€™m voting for the felonā€ T-shirt every 4 swipes on Tik Tokā€¦ meanwhile all is quiet on Trumpā€™s Facebook page.

My entire TikTok feed right now

  • Lobbying spend is at a record high for Meta. I wonā€™t say it has anything to do with TikTok but the timing is curious

    Source: Open Secrets

TLDR: This is the least bullish Iā€™ve been on the stock in a long time.

The Low Down on Metaā€™s Lobbying Strategy

Going back to lobbying - Metaā€™s doing a lot of that nowadays. You can tell a lot about what keeps a CEO at night by tracking where lobby funds are going. And, in Metaā€™s case, spending this year is at a record high:

  • Higher this year than after Cambridge Analytica

  • Meta is also outspending every other tech company for ā€œ Internetā€ lobbying

  • 30+ lobbyists, 5+ agencies

For a sense of scale - Meta is outspending every single tech company by a longshot on lobbying costs. And this lobbying is not new, itā€™s been happening for years.

2024 Lobbying spend so far

Part of this is paying Targeted Victory to poo poo TikTok - TV is the firm involved in nearly every Republican election at every level of government (more here).

The campaign includes placing op-eds and letters to the editor in major regional news outlets, promoting dubious stories about alleged TikTok trends that actually originated on Facebook, and pushing to draw political reporters and local politicians into helping take down its biggest competitor.

Washington Post, 2022

I guess now we know whoā€™s responsible for some of the spicier Daily Mail headlines. But wait- THEREā€™S MORE.

Meta is lobbying in a litany of random areas. Certainly we can all read between the lines here that ā€œ Homeland Securityā€ lobbying equals TikTok annihilation. But, thatā€™s actually a major distraction from larger issues.

Metaā€™s lobby strategy: undersea cables, hate for the EU and India trade ambitions

Donā€™t ask how I know this - but here we go:

1) Trade lobbying is focused on China, US-India trade negotiations, EU/US data flow and data localization and cross-border trade flows.

What this tells us:

  • India expansion is likely a major focus for Meta right now. This is validated by heavy investment in WhatsApp build there

  • Educated guess: Meta wants China trade agreements. This tracks with how aggressive they are with TikTok and previous (not so public) attempts to crack that market.

  • Major data center investments outside of the country

2) Tax lobbying on issues critical to Meta bottom line

What this tells us: 

  • Meta is focused on issues related to Digital Services Taxes (DSTs)

  • In English: DST is the ability to foreign countries to tax the digital goods of US based companies, effectively taxing the revenue twice - once in their country and once in the US.

  • This is a major issue, which is equivalent to the start of a trade war.

  • Meta is asking the US government to either fight back or to reduce its US taxes to offset what it has to pay for foreign DST.

  • Extremely relevant to Metaā€™s bottom line - deep dive here

3) Homeland Security and DOD Lobbying taking an interesting turhn. It is by far the highest staffed lobby team for Meta. I wonā€™t bore with ā€œ China is Badā€ lobby efforts - hereā€™s what peaked my interest:

What this tells us:

  • The newest hot button is ā€œissues related to infrastructure and subsea cable systemsā€

  • I wrote about this a year ago in the very first issue of the newsletter

4) Meta is likely pissed at local news outlet pay rates

What this tells us: 

  • The Journalism Competition & Preservation Act (JCPA) is a bipartisan bill that allows local news companies to negotiate with Big Tech to ensure they are compensated justly

  • Meta is specifically lobbying on this bill, which signals that the bill has created an issue to operations

  • My guess the issue is that smaller news agencies can collectively negotiate rates with Meta ( almost like a union) and are entitled to arbitration if Meta doesnā€™t way to pay a ā€œfair rateā€

5) Meta hates having to pay $1B to the EU in fines

What lobbying efforts tell us: 

  • Multiple efforts around ā€œ Schrems IIā€

  • This is essentially the legality of transferring user data from EU to US and it involves GDPR.

  • Metaā€™s ā‚¬1.2 billion fine is the largest fine imposed under the GDPR

  • Basically, doing business in Europe is toxic.

Are you a paid subscriber yet?

This Friday (June 21) paid readers will get a bonus issue with the the full stock outlook report, using data from leading analysts + data on options trading and institutional ownership shift. This data took me a while to get together this quarter and thereā€™s quite a bit to cover so I decided to make it a whole issue on its own.

Hope you enjoy & thanks for your support!

Preview of detailed price data available to paid subscribers this week. Savage, I know.

The information provided herein is for general informational purposes only and is not intended to provide tax, legal, or investment advice and should not be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation of any security by That's So Meta, its employees and affiliates, or any third-party. Any expressions of opinion or assumptions are for illustrative purposes only and are subject to change without notice. Past performance is not a guarantee of future results and the opinions presented herein should not be viewed as an indicator of future performance. Investing in securities involves risk. Loss of principal is possible.Third-party data has been obtained from sources we believe to be reliable; however, its accuracy, completeness, or reliability cannot be guaranteed.