NEW YORK, Dec. 21 (Reuters Breakingviews) — Meta Platforms (META.O) is the story of two companies bound only by their potential to sell ads and their owner, Mark Zuckerberg. The social network that powers Facebook and Instagram will no longer be an ATM as big marketers shrink their wallets in 2023. This would prompt its founder and CEO to separate his beloved Metaverse project from his other ventures.
In 2022, Refinitiv estimates that Meta will receive about $15 billion in free cash flow, down 60% from 2021, due in large part to spending on virtual worlds. But the cash flow from Meta’s operations alone — mostly businesses that don’t spend money on the Metaverse — makes up a 15% return. That’s three times the free cash flow yield of consumer goods giant Procter & Gamble (PG.N) and surpasses oil major Exxon Mobil’s (XOM.N) 2022 results.
Instead of making Meta’s shareholders collectively pay for Zuckerberg’s ambitions, he could fund himself with dividends from the parent company. If all cash flow from operations is returned to shareholders, which equates to about $18 per share, Zuckerberg will have about $6 billion to reinvest in the project based on his stake. It’s not enough given his current spending plans, but some big investors who share his vision may want to invest with him.
For now, Zuckerberg may be more inclined to spend investor money. With 57% of voting shares, it would be very difficult for any shareholder to get him to do anything else. However, he has financial reasons to refocus. Facebook and Instagram are under the regulatory microscope, which is also starting to hurt the Metaverse. In December, the FTC and Meta launched a high-profile legal battle over the acquisition of Within, a developer of virtual reality apps. If Meta were smaller, or if Metaverse were a separate company, it probably wouldn’t get as much attention.
In addition, the social media business needs a lot of attention as the costs start to slow down. Zuckerberg, who has never led a public company during an economic downturn, may not be the best person to lead in an economic downturn. He may reluctantly relinquish control by distraction. It might be a good plan to split the Meta and take the verse.
There was a time when forecasting was a relatively easy job. The most reliable approach is to assume that next year’s results will be very similar to the previous year’s results. Many corporate executives and money managers owe their stellar reputation to this simple rule of thumb. never ever.
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Post time: Jan-07-2023