Last fall I warned you Facebook has a
fundamental problem.
More and more people were realizing it and it would have an
effect on the company’s business going forward.
Here’s the jist of it:
…the biggest problem with
Facebook is it’s all fake intimacy; a pale simulacra of real life interactions
with people you are supposed to care about.
But, I don’t care about 99%
of the people I went to high school with. I went to college 1100 miles
from those people and barely looked back. The people I truly value from
that part of my life mostly feel about Facebook the way I do.
That’s what makes them people
I value.
They
value the value of their closely-held opinions and don’t dilute it by publicly
sharing their banality. They realize that being friends is more than
dropping political stink bombs in someone’s digital living room and saying, “I
dare you to not breathe.”
So, here you are on a platform that is supposed to be all about
you and the last thing anyone really wants to be on Facebook is … themselves.
In the November 2011 issue of the Gold Goats ‘n Guns Investment Newsletter I
led off that issue with this criticism of Facebook as a reason the company
would soon hit the proverbial customer wall:
Facebook was built on the
false premise that we want to be in contact with all of the people we ever met
ALL THE TIME. But no, we really don’t. We all, as T.S. Eliot put
it, “prepare a face to meet the faces that you meet.”
We are all different people
depending on our venue. Public social networks force us to adopt one persona
or face the wrath of the self-righteous.
A billion plus people who are
all wrong on the internet. In real time. Lovely!
Social media is taxing. It’s fundamentally poor quality
social interaction. It’s either endless moral preening and virtue signaling
or a time-wasting diversion.
That’s not to say I don’t love a good cat video, because I do.
Either way it’s an addictive dopamine-producer, a digital drug
meant to divert many people from the fact that their lives have so little
meaning.
Once the curtain was pulled back and Facebook, along with
Twitter and Google, were revealed to be in bed with certain political forces
intent on enforcing a particular point of view, the exodus from Facebook by
people began.
The Earnings Wall
The news now is all about Facebook’s less than stellar Q2
earnings report. While it’s year-over-year growth numbers are still
impressive to say the least. The market rightly dug behind the top line
numbers and reacted not only to Facebook’s conservative earnings guidance going
forward but also the lack of growth in the Americas and Europe.
However, Facebook lost 1 million users
on a sequential basis in Europe, due to the introduction of
GDPR. On a year-over-year basis, the company added 16 million users in the
region.
MAUs
in the U.S. & Canada region grew 5 million over the past year but remained unchanged
sequentially at 241 million.
That’s zero to slightly negative growth in the U.S. and Europe.
Yes, market penetration in those markets is high. No
question, but Facebook is still being valued, or at least was, as a growth
company.
Top line revenue, especially from advertising, keeps soaring but
so do costs, as Free Cash Flow fell, so, margins are being squeezed as Customer
Acquisition Costs (CAC), vital to a business model like Facebook’s, are rising.
This is why the stock was gutted.
Growth is flat in the West but rising strongly in East.
Those customers will be lower revenue customers with higher acquisition costs.
The Customer is Always Right
But, I think the bigger story for Facebook it’s more pernicious
than that.
There are people who simply will no longer use a platform that
is hostile to them as a user. Facebook, as I pointed out in this post from March,
continues to push voices it doesn’t like into smaller and smaller ghettos
immune from multiplication.
Facebook
is considering segregating off all Page traffic
onto a different feed, fundamentally altering how billions of people interact
with them.
They are doing this 1) for
money, by forcing page owners to pay to be in users’ main feed. And 2) to
destroy the traffic of those who, again, are the wrong people who say/think the
wrong things…
…
They still want your time and
your data. After all, you are the product on these platforms. But,
they want you in the “ghetto of low amplification” of your voice.
If there is a core American value left at this stage of the
Culture War it is the our inherent sense of “fairness.”
Donald Trump uses ‘fairness’ language to persuade people he’s
right in starting trade wars with Europe and China.
For its faults, the Bernie Sanders revolt stemmed from the
unfairness of bailing out the banks to the tune of trillions while everyone
else lost their homes.
Wall St. gets fatter while Main St. gets squeezed. No
wonder everyone is so ready to vent their spleen on Facebook or Twitter at
anyone who will listen long enough to give them their dopamine hit of
attention.
So, Facebook’s targeting conservatives and libertarians (which
they’ve been doing from the very beginning), is back-firing on them. Up
until now, they haven’t had to face reality that abusing your customers never
ends well.
There were still greater fools to sign up.
But, like any other easy-money-created malinvestment, the false
signals transmitted to the producers by consumers spending overly-cheap money,
they eventually conflate success with power to dictate terms to consumers.
And that never, ever ends well.
Facebook and other platforms of Progressive control are feeling
the heat of a populist wave that is now fighting back using the same techniques
and fairness as they become more radicalized.
Facebook helped set the rules in this War and now they are
beginning to feel the burn of what happens when the other side strikes back.
I’m specifically talking about boycotts and pressure campaigns
from the Left which have cost people their jobs, like Rosanne Barr, being used
now by the MAGA crowd who will play at that level, c.f. James Gunn.
Facebook is now being targeted by them and it’s showing up in
the numbers. Just ask the NFL and Netflix.
Insider Trading?
The Cambridge Analytica scandal is having reverberations
throughout Facebook’s business. Because the real value of Facebook is not it’s
platform to issue shout-based ads at people constantly.
No, the real value of Facebook is its massive database of real-time
preference data which can be funneled to advertisers and other intelligence
services, business of ‘official,’ and the more people wake up to this the less
real information they will be willing to share with Facebook.
Maybe this is why Mark Creeperberg was so aggressive in selling
his stock after the Cambridge hearings exposed him as both a fraud and a
control freak.
From Zerohedge:
Bloomberg
has also picked up on this insider selling deluge, and writes that “nine Facebook insiders
combined to sell about $4.13 billion worth of stock since the Cambridge
Analytica data-mining scandal first surfaced on March 17.”
Chief
Executive Officer Mark
Zuckerberg accounted for 85 percent of the total, according
to data from InsiderInsights.com, which analyzes such transactions.
Creeperberg sold an astounding $3.5 billion in stock last
quarter. This came after his last attempt to disenfranchise shareholders
through the issue of non-voting rights, Class C, stock, failed.
This guy is a nasty piece of work who wanted to cash out via
dilution to run for President while retaining ownership control of an Orwellian
Panopticon.
Yeah, seriously, screw that guy.
I don’t invest in or recommend companies with poor
leadership. Companies are a reflection of leadership. Yes, Facebook
has made many people very rich. But, a 20% haircut in a day while
insiders are selling billions is a major tell that there is something seriously
rotten in the state of Facebook that won’t be fixed with a tweak to their feed
algorithms.
Is the end nigh? No. But if you’re an investor you
have to consider whether this company has passed its peak.
