Knox Ridley on Why Meta Platforms (FB) Tumbled After Earnings
February 15, 2022
I/O Fund’s Portfolio Manager Knox Ridley spoke to Nicole Petallides from the TD Ameritrade Network. He rightly predicted that Meta Platforms (Facebook) would be under significant pressure and Snap would be a winner. Here’s an overview of the discussion.
Why did Meta Platforms shares fall?
I/O Fund has followed Facebook’s business model for the past 3-4 years. We had warned our readers that the company’s business depends on Apple. Most people think that Facebook is an ad company with about 2 billion daily active users (DAUs). They monetize that data and do ads which is accurate. However, most people do not realize that the growth that has made them the powerhouse was because of the third-party data from Apple. Our stance is that Apple owns the real estate on iOS, and everyone else is renting.
“The reality is that Apple built the ecosystem and it’s theirs to monetize as they see fit. In this equation, consumers matter too, and data should not have been collected without permission in the first place.”
Apple changed the landscape by altering IDFA, a unique id within your iPhone that allows advertisers to track your behavior. So, Facebook combined this data and their data and sold the most valuable consumer data. We knew that Apple would take away this data and the Wall Street Analysts ignored this critical risk. I/O Fund's research process, which gives importance to the company's technical aspects like the products, is the clear winner in the long term.
Will you buy Meta stock?
The story of Facebook has materially changed. Everyone likes to focus on the financials like the cash flow and the balance sheet. However, to identify the winners in tech investing, you need to understand the product very well.
In the case of Facebook, the product that has helped to get the cash has been changed materially. They have mentioned in their earnings call that the impact of the iOS changes will be around $10 billion. This is a significant chunk of revenue. Few investors are buying the dip due to the Metaverse. We believe that it will take a few years before Metaverse can be effectively monetized and also Facebook’s history of entering new businesses is not that great. So, we will not be buying the dip.
Often, Wall Street Analysts find it difficult to differentiate companies that will outperform as they don’t have the technical knowledge to understand the products. This distinguishes our company from the competitors as we successfully manage a tech-focused portfolio.
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Will Snap be a winner?
We started to cover Snap on our premium website in July 2019. We noticed the strong app sessions for Snap and the company's plans to monetize the millennials' data that was less known to the broader market, particularly the launch of Audience Networks in 2019. We had also pointed out that Snap is the best platform for Millennials and Gen Z audiences.
We believe that Snap will become one of our bigger positions. What differentiates the company from Facebook is that they don’t monetize third-party data. So they will not be affected much by IDFA. When Facebook got hit, we tried to determine if the problem was with the company or the Ad-Tech industry. We tried to study various earnings reports like Google and Microsoft and then we realized that it was the Facebook problem. The market mispriced Snap. It has an affluent customer base of Millennials and Gen Z that the company can easily monetize in the long term. They also reiterated that the company could grow by 50% year-over-year going forward.
To conclude, Wall Street’s confusion over the tech that runs each company, primarily Facebook and Snap, led to a buying opportunity for I/O Fund members as Portfolio Manager Knox Ridley issued a buy alert on Thursday, February 3rd at $24.95, leading to a 58% gain in one day.
The I/O Fund can make big calls in the face of market confusion for two reasons. The first is our lead tech analyst Beth Kindig’s direct experience in tech unrivaled in the markets. She can confidently make calls the market disagrees with because she understands the tech driving the revenue. Secondly, I/O Fund Portfolio Manager, Knox Ridley, is one of the best portfolio managers in a tech-focused fund, who guides the entry and exits, and previous audits prove this.
The I/O Fund is a team of analysts who share their research publicly as they build a portfolio of 20 stocks. Our team has record results for a retail Fund and we also have four-digit gains on some of our free newsletter coverage. You can learn more about our premium service by clicking here or sign up for our free newsletter here.
Disclaimer: This is not financial advice. Please consult with your financial advisor in regards to any stocks you buy.
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