Meta and nonvoting shares
One of the most frequent conversations I’ve had in recently in trading circles is the value of Meta
(previously known as Facebook). The conversations usually focus on “why are they burning money on the Metaverse?”. From what I can see, it mainly is about them understanding they have to diversify to keep their business. Investors are not happy. I think Zuckerberg is doing the right thing. He is aware we are sliding into a recession which means declining revenue. His fights with hardware providers like Apple further hindered Meta’s ability to get revenue as said companies limited their data capture, making targeted ads less efficient and or valuable. These changes mean they need to be more than just a social media site.
But how are they able to do so? Well, usually with a stock drop like they have had the pressure to replace the CEO or change strategies would be mounting, but it is not here why Facebook has dual-class shares with the second class being nonvoting and the first class voting shares with Zukerburg as the majority shareholder. Zuckerberg’s two use of dual-class stock allows him more flexibility to pursue his goals regardless of the pain it causes investors who can not depose him.
So is there value here? I think so. They have peaked in regards to growth and revenue from ads which means they should pivot, and they can do that unencumbered by the value of their stock in the short term. Yes, they are burning cash to do so, but the question is if and when it will pay off? I think if you are willing to buy at it now 70% down and have a time horizon longer than a year the risk-to-reward ratio makes it a buy but know you would be a nonvoting shareholder and you are at the whims of a CEO determined to make the metaverse a thing.