Shareholders slam Zuckerberg's 'terrifying' $100b+ Metaverse experiment
Start with dumping a fifth of staff, capping that VR capex, firm urges
In a sternly-worded letter to CEO Mark Zuckerberg, Meta stockholders have urged the mega-corporation to "get fit and focused" by cutting 20 percent of staff and shaving $5 billion off annual capital expenses and metaverse investments.
Brad Gerstner, founder and boss of Altimeter Capital, penned the letter on behalf of his firm – which owns a 0.1 percent stake in Meta – and doesn't hold back on criticism of Zuck's empire in the wake of its dismal performance this year.
"In the last 18 months, Meta stock is down 55 percent," Gerstner wrote. "Your P/E ratio [price-to-earnings ratio] has fallen from 23x to 12x and now trades at less than half the average P/E of your peers. This decline in share price mirrors the lost confidence in the company, not just the bad mood of the market."
Much of what Altimeter accuses Meta of amounts to normal corporate bloat. "Like many other companies in a zero rate world — Meta has drifted into the land of excess — too many people, too many ideas, too little urgency," Altimeter said.
Altimeter said that under its three-part plan Meta could double its free cash flow to $40 billion per year and put it in line with revenues earned by other big tech companies, such as Google, Microsoft and Apple.
In the last four years, the number of employees at Meta has increased by more than a factor of three, Altimeter said, from 25,000 to 85,000. Cutting 20 percent of staff would only return Meta to mid-2021 staffing levels, a move that Altimeter said would be unlikely to affect revenue and could even help Meta "run even better and more efficiently without the layers and lethargy that comes with this extreme rate of employee expansion."
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As for capital expenses, Altimeter makes a startling claim: excluding metaverse investments, Meta is still spending more on capex than Apple, Tesla, Twitter, Snap, and Uber combined, with much of the growth apparently coming in the past three years (no numbers were provided). Altimeter said such annual spending should be reduced by $5 billion and kept that way until revenues rebound.
Again, that doesn't include Meta's metaverse investments, which seemed to be the biggest sticking point for Altimeter. The hedge fund said Meta's $10 billion investment in its metaverse-pushing Reality Labs group last year, taken alongside Zuckerberg's claims that it could take a decade for the metaverse to be profitable, is absurd.
Super-sized and terrifying, even by Silicon Valley standards
"An estimated $100B+ investment in an unknown future is super-sized and terrifying, even by Silicon Valley standards," Gerstner said in the letter, and urged Meta to cut its spending on the metaverse by half to no more than $5 billion a year.
Altimeter also urged Meta to adopt "more discrete targets and measures of success" for the metaverse, which it said would likely go a long way toward keeping investors happy.
Meta's metaverse is supposed to be a galaxy of interconnected 3D virtual-reality worlds, accessed via VR headsets, in which people are expected to interact, play, work, look at ads, and spend. So far, it's been a bewildering let down, and little more than marketing. It comes as, among other factors, Apple hampers Facebook's targeted advertising with tracking protection in iOS, and pushes ahead with its own Apple advertising network, while TikTok stalks Facebook.
Meta told us it "isn't providing comment on the letter," making it unclear whether Altimeter's suggestions would be acted on. For its part, Altimeter said it still has faith in the Meta team, and believes the social network – which is used by 1.6 billion people a day and banks about $40 billion a year in profit – should lean harder into AI, which Altimeter believes is "the future."
Its three-point plan, on the other hand, is just a suggestion, Gerstner wrote. "We simply wanted to further engage and continue sharing our thoughts as an interested shareholder."
Meta is due to report its third-quarter earnings Wednesday, with analysts expecting additional disappointment. ®