Meta Wins A Massive Strategic Victory

We just got news that Meta won their lawsuit. Now, they didn't technically win. They actually settled. A settlement is when each party comes to an agreement and they make concessions and usually one side gets the better end of the agreement. In this case, the headlines look very scary. Met is paying out $18 billion into settlement. That's a lot of money. Plus, they're having to make lots of concessions and restrictions with childhood accounts. The headline numbers look scary. And in fact, many people may look at this and think it's bad for Meta. But don't be mistaken. what Meta actually did here was a tactical strategic victory. The nuances in this settlement are incredible and we'll be going over them in detail. What is Meta actually doing as a result of this settlement? What changes do they have to make to their app? How is Tik Tok and YouTube impacted by this? And as an investor in Meta, what does this mean for the future of the company? We'll be breaking it all down. Now, of course, we have some other news to get to. This article from the Wall Street Journal details how Microsoft is making it difficult for investors to understand what they're actually doing, what their capex costs are, what their financing costs are. We'll be looking at some of the accusations in this article. Netflix may become a streaming hub, meaning you may be able to sign up for services like Peacock through your Netflix interface. A lot of investors are confused whether or not this is a good or bad thing for Netflix. And then finally, instead of a fail of the week, I want to do a win of the week, which is Shark Ninja, a company that I've talked about one time in the past, about a year ago, and I still today believe it's one of the most innovative companies in the world. We're going to be doing a little catchup with the massive success of Shark Ninja. So, we have a lot to cover in this episode, and like always, if you enjoy this type of content, you can follow the show for free by subscribing to this channel. Also, the Joseph Carlson Show is on Apple Podcast and Spotify Podcast in video format. So, if you want to see it there as well, you can follow there as well for free. And if you want even additional exclusive content, you can join qualum.com, which currently has 13,000 active members. Now, jumping into today, before we jump into the Meta news and why I believe this was a decisive victory on Meta's part, I first want to disclose my personal investment in Meta. I think it's good to have transparency and show my stake in the company. I am looking at things from an investor perspective, from the perspective of an owner of Meta. A lot of people say, "Well, Joseph owns Meta, therefore, he's biased on the results of this lawsuit." And I think that's a fair criticism to point out when you own a stock, you're more likely to have a vested interest in it and potentially a bias and not being able to look at things objectively. But I don't believe that's the case here. If Meta did have a bad outcome or one that I thought was truly concerning, I would say so like I've done with many companies that I've owned and owned in the past. Many companies have had lawsuits or outcomes that I don't like and I express the concern in the outcome. So, this isn't a situation where I've never been critical of a stock I own. I'm frequently critical. In fact, I've sold stocks I've owned because I no longer want to own them because I believe things are going in the wrong direction. With Meta, I do not see that situation today. What I see with this lawsuit and this settlement is a strategic victory. Now to make it clear when I'm talking about victory, I'm talking about in terms from an investor from a legal standpoint meta settled, which settlements in lawsuits, it it's kind of this vague term to just mean that they wanted to deal with things outside of court. So the word settlement doesn't necessarily imply a guilty party. In fact, in many cases in our legal system, innocent parties will settle just to save time, hassle, money, stress of going through litigation or the unpredictable outcome of a jury or a judge. You never really know what's going to happen in court, even if you feel that you're completely not at fault. So, in this case, there's lots of reasons that companies could settle. And when I looked at the case with Meta, it became very clear why they agreed with this settlement. It is overwhelmingly in their favor. Now, if we look at the details of this settlement, it starts off by looking really bad. And I believe this is what a lot of investors are getting confused about. Met is agreeing to pay $18 billion to the 48 states, bringing an end to the massive federal trial over social media's harm to teenagers. And they also mentioned that Meta is also making sweeping changes to its services, Facebook and Instagram, including implementing a 2hour time limit to its apps. This looks real bad. Met is paying $18 billion. They're they're changing the time limit. So, all of that looks pretty bad until you keep reading a little bit more into the details. In a unique setup, Meta will pay out only 70% of the settlement amount unless Tik Tok and YouTube join in. And they also have to agree to a set a default 1 hour time limit a day on their apps for underage users and pay states roughly $5.3 billion between them. Meta will only pay the remaining 30% of its settlement, also 5.3 billion, if the two other companies agree to the terms. Oh, so now we get to the first big caveat. So Meta is not paying $18 billion unlike the headlines that you're seeing. They're just not paying that today. Again, unless Tik Tok and YouTube decide to restrict the amount of time teens can spend on their service, which I don't believe they're going to do, but we'll discuss that in a bit. Meta is really paying 70% of that number, which is 12.7 billion. So this whole settlement from all these states, the big lawsuit is $12.7 billion. Now, let's just put this in context. We have Metahare, a company that generated in the trailing 12 months $228 billion. A high margin, cash producing, fast growing, super high revenue company. $12 billion in and of itself is not a lot of money for Meta. Meta is spending hundreds of billions of dollars on capex. But there's another detail here that makes this even more favorable for Meta. Another big caveat. Meta did not agree to pay the 12.7 billion upfront. They're not paying it this year. They're not even paying it next year. They agreed to pay it in installments over a decade, 10 years. And that is incredibly favorable to Meta because there is a time value to money. We know that money today is worth more than money in 10 years. If you apply an 8% discount rate to this $12 billion over 10 years, it's more like $9.2 billion. So in real economic terms, Met is paying about $9 billion. This is from a company that just did $228 billion in revenue in the trailing 12 months. This is otherwise known as a speeding ticket. It's a a slight bump in the road for Meta financially. Uh it's not even it's something that they could round off and most investors wouldn't even notice. And investors may view this as just a a total loss. This is $9 billion economically speaking. That's a complete loss for Meta. But that's not really the case. See, Meta got something out of this. They didn't just pay $8 billion. They are getting something in return. Meta has made a calculated decision. Meta has agreed to pay a small amount of money for legal stability, for regulatory stability, and to avoid the unknown outcome of going to trial. Anything can happen in trial. Even if Meta is 90% in the right or 95% in the right, there's always the chance that some judge could do something crazy and cause him to divest Instagram or something insane. It's unlikely, but Meta just made sure that won't happen. They just paid $9 billion to ensure that outcome can never happen. And that makes perfect sense for Meta. They were most likely to win this case, but even so, they wanted to avoid the potential outcome and the uncertainty from going to trial. So, they decided to pay the speeding ticket to end it. Now, the total amount of money that Meta is paying in this settlement over the next 10 years is somewhat negligible. It's not nothing, but it's not a lot of money, and it won't impact Meta's intrinsic value or their long-term prosperity. The bigger concern for many investors, including me, was the sweeping changes to the app itself. Regulators have the power to change how apps work, restrictions on them, control how users are able to interact with the app, and there's things that they could do that are potentially very damaging to Meta's business if they make the app very ineffective. And there were a lot of changes that they made to the app as part of this agreement. But this is where things get even better for Meta. A lot of investors will read through this and see these changes as very damning for the company that there's lots of restrictions, but I believe there's a different story going on here. Meta starts off by essentially framing this as something that they were already moving towards. They say ensuring teens have safe and productive experiences in our platform is an absolute imperative for Meta. We want to get this right for parents and teens. And that's why we've partnered with the state attorney general to set new industry standards. The brilliant part with how Meta is framing this is they're not looking at it as though they're a unique issue. Meta believes strongly that every social media app, every large company uh app that affects teens should be regulated in somewhat similar fashion. And they are framing this is working in collaboration to set industry standards. No, this isn't just a lawsuit where Meta is making some concessions. This is a reframing of industry standards. And now Meta has the moral high ground to call upon other social media companies to join them in making their app safer for children. Calling on Tik Tok and YouTube to join us. While this is an important step, the fact that teens move fluidly between dozens of apps a day, all platforms should empower parents to support teens by putting the same measures in place. Because we know that when teens are restricted on one app, they simply move to another. For meaningful progress to happen, we urge Tik Tok and YouTube to join us and the state attorney general in supporting this new standard to ensure teens use social media in healthy and responsible ways. So now now Meta is saying, "Look, we're being responsible. We're agreeing to all these limitations. We're agreeing to all of these different things and we're calling upon YouTube and Tik Tok. You guys have to join us now." So Meta is completely shifting the conversation here. They went from a place where they are the ones being irresponsible, damaging teens to now the ones saying, "Look, we're being very responsible. We are working in collaboration with the state attorney general. We've set industry guidelines and standards that we've collaborated in a bipartisan agreement and now we're calling upon YouTube and Tik Tok to join us. Do you guys want to join us? Do you want to be responsible, too? Or do you not really care as much about teens health? Do you not care as much as we do?" It's incredible the way that they've shifted this conversation through this settlement. They outline in detail the new protections for teens and stronger controls for parents. They say, for example, there's going to be a time limit, a default 2hour daily limit that teens can only turn off with a parents permission. This limit is commulative across Facebook and Instagram, and time spent scrolling on both apps counts towards the total, including if we detect that someone has multiple accounts. Now, with this time limit, I actually, as a a parent, I think this is a good thing. I don't think teens should be on social media, especially Facebook and Instagram for two hours a day. Two hours is already pushing it. So, having a time limit of 2 hours by default that the parents can change, I think is excellent. It's an excellent product adaption. It is something that is needed in these type of products. Now, I am a little bit pessimistic here that I think most parents will immediately give in when their teenager complains that they want more time. So, I see them starting off with this daily 2-hour limit. Teenager running into it, teenager complains to mom and dad, "Oh, just give me more time, just this one time." The mom gives in, unlocks the time limit, and then it's gone. So, I think for a lot of for a lot of families, this time limit's not going to last for long. But in the case that a parent does want a restricted 2 hours per day on social media, this is a really good future. It'll create a better relationship with social media. This only stands to benefit Meta as a product. If you believe that products over a lifetime should benefit users and have positive engagement and positive results, then you don't want teenagers spending 5 hours a day scrolling Instagram. That's not good for anyone. So, this is a restriction. Investors are viewing it as a negative thing when this will improve the relationship that teenagers have with Meta's products. How is that a bad thing? How is it a bad thing for Meta to have a better relationship with their teenager users than they do today? So, I don't view this as bad at all. I I think the time limit is completely fine. I think it only stands to benefit Meta as an investor, Meta as a company and teenagers in the relationship with the company. We also have night mode, which is another thing that I think is very healthy. Night mode is a default block from our apps between midnight to 6:00 a.m. So, teens under 18 can't be up in the middle of the night browsing Instagram res. How is that a bad thing? This is neither bad for Meta, it's not bad for them at all because it makes their product safer for their teenagers. It makes them have a better relationship with teenagers. It's better for parents and it's better for the teens. Every single party benefits in this regulation. Every single one of them. Now, I want to be clear here. If these type of limits were put on for adults, I would have a very different tone. I would not be in favor of any of these type of limits on adults. Adults should be able to stay up and browse whatever they want, whenever they want. But these are teenagers. These are not adults. Having time limitations, having nighttime mode is a good thing. Notifications will be muted by default between 8 and 3 p.m. During those hours, teens will no longer receive push notifications except for direct messages and alerts about their account security and safety. Making it so that they don't have the notification popup that they're not distracted during school hours, I do not see as a negative thing. They'll also receive prompts to just let them know, hey, you spent 15 minutes on this. you know, think about doing something else or taking a break because they don't want you to be in the habit of just continually scrolling forever. Teens will be able to choose a non-algorithmic feed, one that isn't personalized by recommendation systems as their default. They will periodically remind them of this option, and parents can choose to adjust their teen's default experience and requirements. In this setting, so basically, they can just do a chronological feed. They can see what's been posted by their friends or family. They don't have to have the algorithmic defined feed. They have autoplay controls. Teens can now turn off the autoplay feature. Another thing they're doing for teen accounts is disabling cosmetic surgery and extreme makeup filters. In addition to our existing policy to block teens from using cosmetic surgery filters, we're we're now blocking teens from using extreme makeup filters. These are great changes for teens accounts. These are all positive things. We don't want teens believing that they have to have their faces plastered with makeup to look like the best looking people. that's not that's not something we want to project to them. So these type of changes, every single one of them are things that make the product better for teenagers. Now again, I would not be in favor of any of these for adults and I think that would be a big overstep with the government to try to implement these type of regulations for adults, but for teens, this is appropriate. Now, there's a lot of ways to look at these restrictions. One of them is just as a teenager, you could look at it from that perspective and say that this makes a much more healthy app for teens, which is just a good thing. Anything that's healthier for children and teens is a good thing. But even from an investor perspective, if we change the frame from teenagers to the mindset of an investor, many investors look at this as a negative that Meta is now becoming more restricted and more tied down and teens won't be as addicted or engaged in the apps. Maybe they won't generate quite as much ad revenue. Investors are completely incorrect in that thinking. First of all, the amount of ad revenue that teenagers generate from Meta is incredibly low by every third party estimate. Teens make up only a small portion of the overall user base. Meta literally has 3.6 billion users every single day. 90% plus of them are adults. And adults have the purchasing power. Adults are what most companies are advertising to. So this is not going to impact Meta's advertising revenue to any meaningful degree whatsoever. But more importantly, when you're an owner of a company, when you're an investor, you want your customers to have a good relationship with the company itself. Isn't that a novel idea? When I'm an owner of Costco, I like the fact that people like Costco. They like shopping there. They view it favorably. Costco treats their customer well. The customer really enjoys Costco. That's a symbiotic relationship. I wouldn't like it if Costco treated the customer poorly to try to turn out a little bit more money. That'd be a very poor decision by Costco. It would serve them in the short term, but not in the long term. These type of controls, these added controls for teens accounts which are meaningful. They enhance and improve the relationship between teenagers and meta products. It makes it safer, makes it better, makes it so that they'll view it more favorably. It also puts a lot of parents at more ease. They feel like they have more control over their teenagers. They don't have to worry quite as much about meta products. Right now, they still have to worry about endless watch time on YouTube or Tik Tok, but not on meta products. In fact, with all these additional controls, parents may actually feel that Meta products are better, more regulated, more safe, more responsible than the counterparts of YouTube and Tik Tok. So, this actually positions Meta in a much more favorable way when it comes from the perspective of teenagers, parents, and regulators. All of the relationships here should improve as a result of these regulations. And it also again pits YouTube and Tik Tok as the ones now being irresponsible. So, if we summarize why Meta really won here, they turned an $18 billion settlement into really a $12.7 billion one that's paid over 10 years, which has more of an economic impact of about 9.2 billion if you apply an 8% discount rate. So, they're paying a fine of $9.2 billion to make their app better for teenagers, to make it so that they have more sensible regulations for these accounts, to give parents more control. They simultaneously made their big fine go from $1.3 trillion, that was the the big numbers plastered on Fox News, down to $9 billion. That's not quite the 1.3 trillion compared to 9 billion, not quite the same. They minimized the financial penalty to a minuscule amount. And at the same time, they improved their product. And then they also somehow tied YouTube and Tik Tok into the agreement. They position themselves as working with regulators to establish ground rules of how social media apps should run. And they're now inviting YouTube and Tik Tok to join them. If YouTube and Tik Tok join them, that 2-hour time limit per day by default goes to only 1 hour. Meaning that teens would only by default be able to watch YouTube for 1 hour per day. Obviously, YouTube is not going to want to do that. Google will likely fight that type of agreement, making themselves look like they're on the outs of regulators, not Meta. The way that Meta has been able to craft this agreement is incredible and it's a strategic victory on their behalf. Now, let's go ahead and move on. We get to another story here. This one is from the Wall Street Journal. They say that Microsoft is leaving investors flying blind on its AI business. Across three critical drivers of the AI future, cloud computing, capital expenditures, and its relationship with OpenAI, the company disclosures fall well short of what investors need. Take Azure, Microsoft's flagship cloud platform and primary growth engine. management should provide clear financial visibility, but instead keeps everyone in the dark. Microsoft on its latest annual report said that Azure and other cloud service revenue increased by 41% during the fiscal year ending in June 30th. It gave no dollar amount for that revenue, nor the year earlier for that figure, nor any expense or profit data for Azure. Instead, Microsoft buries Azure inside a segment called intelligent cloud, forcing investors to guess where the legacy software products end and the real cloud growth begins. Now, I was expecting to disagree with this article. I was looking at it saying, "Oh, they're they're launching a bunch of accusations against Microsoft." Uh, but everything they say here is spoton. It is dead accurate. Microsoft is not they're not transparent with Azure's growth. Very, very opaque. For example, this is a a constant complaint I have when looking at the KPIs and trying to generate KPIs in Qualrum for Microsoft. I have my team. We're trying to put together the most informative KPIs possible. And I wish there was an Azure one. And part of the reason this is frustrating is because basically all the other ones do report their cloud business. For example, Amazon does quite cleanly and clearly. By contrast, Amazon reports, Amazon Web Services, the world's biggest cloud provider, as a standalone segment with sales, expenses, and margins disclosed. So the Azure results, the Microsoft cloud results themselves are completely opaque. They're obfiscated. We have no way to really know what they are. But by contrast, Microsoft has reported their Xbox numbers in granular detail. So you have all the numbers about LinkedIn, Xbox, and all these smaller businesses that investors don't even care about. Uh investors are they have to be reminded that Microsoft owns Xbox. That's how much they care about it. If if you ask an investor, uh what do you think about Microsoft's Xbox business? They'll go, huh? Oh yeah, Microsoft owns Xbox. That's right. These are the ones that Microsoft gives lots of detail about. Granular reporting on these businesses. So everything that's said here is true. It's a giant omission in reporting standards by Microsoft. their peers are doing. It is a a massive, in fact, the most important business line by Microsoft and they're not even giving the the numbers of revenue. They're not even giving us how much revenue Azure makes. And so, I would I would hope Microsoft changes this at some point. I know they have some strategic reason that they're not doing it. Maybe they don't want to give data to other companies. Uh but Amazon is reporting it and they're doing just fine. So, hopefully they add more transparency. Now, moving on, we get to some rumored news that Netflix may be turning into a platform where they host different streaming services like Peacock or Fox 1. Now, being a streaming hub is different than just being a streaming service. Right now, Netflix is the biggest streaming service in the world by far with 325 million plus subscribers, about 700 million viewers. So, Netflix is completely massive. has wide distribution, but so far Netflix is only using its distribution for itself. It just has its own original content or shows that they license to have temporarily in their library. But everything that Netflix shows in the Netflix app is the Netflix library. And that's where a streaming hub would be different. With a proposed streaming hub, if Netflix goes down this path, that means that they'll have services like Peacock or Fox One or maybe many other services that you can sign up for through Netflix. So, you would go on to Netflix, log into your account, you'd see a little thing that says, "Sign up for Peacock or sign up for HBO, and you could pay for those services within the Netflix application. Those services and paying for them would use the payment details you already have with Netflix. It would just bundle the cost together. You would likely have some type of discount signing up for it through Netflix. And then you would also have some added convenience. rather than going to the separate app to watch Peacock or Fox One or HBO or whatever the other streaming service is, you could actually watch their content within the Netflix user interface. So, it basically combine both streaming services together, making it so it's no longer just the streaming service Netflix, it is the streaming hub of Netflix with other streaming services content. Now, there are companies that are already doing this. Apple's trying to do it with their Apple TV service and Amazon Prime is likely the biggest one trying to do this today. You can sign up for all different libraries like HBO and Stars within Amazon Prime. And that's where a lot of the cost and benefit comes into play. The downside is for Netflix is that one of the things they're known for today is having a very streamlined, very good user interface. It's very sleek, easy to use, easy to understand, and you don't have paid content mixed in to the library. It's a little bit frustrating when you go to Amazon Prime, which you're already paying for the Prime membership, and then you see a a list of movies and TV shows that you have to pay additionally to unlock or rent or buy, or you have to unlock different streaming services to watch those shows. So, that creates a bit of a frustration. It feels like you're not really getting what you paid for because you're paying for Amazon Prime, but you're now seeing shows that cost money within Amazon Prime service. And Netflix may run into the same problem if they did this and they did this poorly. I [snorts] don't believe Netflix should follow the path of Amazon Prime. They shouldn't list out videos that you can rent and movies you can watch if you pay for them in the Netflix interface. That would be a massive degradation in the way that Netflix works today. It would make the the app instantly feel cheaper, just not as clean or premium. What Netflix should do is allow you to sign up for other services through Netflix. And if you do, those services, all the free things on them are tightly integrated into the Netflix experience. Imagine the Netflix user interface, but you simply just have a bigger and bigger catalog because you're paying for other services within Netflix. So when I look at this news, I believe there is a path forward for Netflix to do this. And the incentive is very clear for them to become a hub. The reason why is because so far Netflix can only charge for their own streaming service. They can only make money for their own content. But if they became a streaming hub, they're now directly monetizing their massive distribution. Other smaller streaming services would pay money to be on Netflix, they would share in the revenue that they're making. If anybody signs up through Netflix's platform, Netflix, in essence, could directly monetize their massive reach and their massive distribution. They could earn money without spending more money on content. They could earn money by just being big already. That's a very very attractive route to go. And I believe that Netflix will eventually go this route. They just have to do it right. I believe part of the reason too that Netflix is doing this is because there's other companies, not just Amazon Prime, but YouTube is already going this direction. YouTube is not just a content creator portal. They now have NFL games. They now have the Oscars. They now have live events. YouTube has aggregated a lot of TV on its platform. And I believe that's the next phase in the streaming wars. Not just creating content yourself, not just licensing it, but becoming the hub, the central place that people go to watch TV. And I believe that's the next strategic move on Netflix's behalf. So I would watch over the next 6 months. I believe Netflix will make an announcement that you'll be able to buy different services on their platform. Now, finally, in this episode, I didn't want to do a fail of the week. I wanted to end on a more positive note. And in this case, I believe it's a a company that continues to impress me that I want to highlight once again. About a year ago, in fact, this was July 7th, 2025, I highlighted Shark Ninja. And I highlighted it as a company that ironically it sounds just like a little consumer goods company. They make little trinkets in your kitchen. But if you really do research on Shark Ninja, you'll find that it's one of the most innovative inventive creative companies in the world. and the pace at which they're innovating should be studied because they are doing something right. I pointed this out when I did my research a year ago. And we'll just play a little clip from that. Every time I go into Costco, I see a Ninja branded air fryer every single time. And the only reason that Costco keeps them on the shelves is because they keep selling. If they stopped selling, they would no longer they would no longer be ordering them back at Costco. Yeah. They also have a lot of beauty items. They're they're gaining market share in beauty, which is an area that I would not think Shark would be a part of. It seems like it would be difficult to go from uh vacuums to hair products, but it seems like they're making that leap. And that's one of the things that's interesting about this company is the more that I study Shark Ninja, the more that I realize it is not a vacuum company. It's not a beauty company, not a home cleaning company. It's just an innovative company. It's just a group of inventors. all these inventors working together, engineers working together to solve any problems. And that's the way the company should be analyzed as a a think tank, a continual group of people working, iterating, and inventing solutions. When we look at the stock's performance since that video, it's been incredible. It's up 65% year to date. And in fact, if we zoom out to the past 5 years, it's up 344%. Shark Ninja has trounced the general market, trounced the QQQ. It's been an incredible outperformer and it continues. It just continues to perform. Even reading about some of the things this company's doing, it's really impressive and a lot of the things seem out of left field. Shark Ninja is building an AI tool to monitor profitability in real time. Their finance team is building this report so they can see their profitability in real time, shaving off weeks of cumbersome processes and building a forecast. So they're even inventive internally and making it so they can see exactly what d direction the company's going at any given time. When we look at different people that have been interviewed by this company, they say that most investors and most people view Shark Ninja all wrong. Neil says, "I've been with Shark Ninja for about 18 years. When I started in 2007, we were a one category company beginning with steam mops. We've grown from that one category to over 37. We were also very North American ccentric at the time. Over the last 15 years, we've expanded to over 35 markets, bringing innovation and Shark and Ninja products to consumers worldwide. We get asked questions from retailers like, "Are you a cleaning company? Are you a kitchen company? What category are you in?" And after a point, we realized that we're actually just a business of solving consumer problems. The thread that connects all the products is this. What is the whites space? Is there a consumer problem that's not being solved in a category? Shark Ninja will continue to grow rapidly as long as they stay on this iterative path of flexing their innovation muscles, being able to iterate through defining problems, solving them, and making them solved at scale that's affordable for lots of consumers. Uh they they've done this over and over again. I think they're going to continue doing it in the future. So, this is a company that is on my watch list. I'll be looking for dips in Shark Ninja. That's going to be it for this episode. See you in the next one.