Ca$htag$: META’s AI Bet Not Showing Returns, Yet

here on Schwab Network. I'm Diane King Hall alongside Kevin Higgins. Time now for our cash tag segment. For that let's bring in our next guest. And that is Landon Swan, co-founder of like folio with a status update on meta platforms. Landon good to see you. Happy Friday to you. All right. Meta platforms put a big chunk of its issues in the rearview mirror this week with that settlement with attorneys generals across the country. What is the latest sentiment data that you all have look like? Yeah, I think that was a that was a huge one. I mean, investors wanted to see something like that. It's a big number, 18 billion over a period of time. Plus, I think they're looking at 10 billion in legal expense. So congrats to the legal teams that hit that one. But yeah, I mean this is this is a stock that's, you know, been fairly punished recently. And, you know, you look at what they've been doing that everything is basically going in the right direction for meta when it comes to their their core numbers. It's I think the, you know, the CapEx has been the story forever. And you can kind of contrast them to a lot of the other big spenders. And, you know, everybody else is doing well as far as like spending a lot of money. You got, you know, Microsoft, Amazon, even you could argue Google, I think, absorbed their CapEx numbers a lot better than meta has. I think it really comes down to, you know, is there a proven revenue model? Is this directly, you know, tying into something that we can see a return on right now? And for meta, the answer is not quite yet. Just hold on for a minute. Right? We promise it's coming. They've got potential to rent rent out some compute to anthropic. They've got the, you know, the promise of even better AI tools to help help boost their ad spend even more. And I got to tell you, those those AI ad tools are already really overperforming. I mean, they're doing a great job there. You know, they get to the point where their clients, people who advertise on meta are starting to, to drop or don't need their, their PR and their ad middleman managers. And the demand for these ads has thus gone up. I mean, you can see because of, you know, because of the success here, the demand for meta ads is the top of all the ones that we track, that the change in the year over year is plus 54%. So they're converting really well. People, you know, obviously clients, when the when they see their conversions go up so much, they decide to spend more money. It's working. And that's what we're seeing. We're seeing that tremendously increase. And also, you know, the, the wave of just spending on social ads overall, we're seeing that go up. And I think, again, it comes down to being able to be more efficient. Everyone's ads are being are converting better, they're more efficient, so they're spending more money. So Meta's already putting good use to their compute, to their to their massive infrastructure. I don't know how much better it can get as far as that goes. So it's really a question of, all right, so where are you going to spend this money? Because, you know, free free cash flow is basically collapsed almost to zero from $8.5 billion. So that's a lot. You know, that's a big concern for investors. They want to know where that's, you know, where that's going to, you know, impact the the company going forward. How are we going to deal with that? What are the pros? We've got the cons right now. What are the pros moving forward? But the the business overall is very solid. I mean, you've got Instagram leading it clearly last quarter, I think that we reported they were plus 12% on a year over year basis. Now right before the report. Now they're plus 16%. That's a month ago I'm talking about. So they're already moving up. But it's, you know, it's going to come down to, again, how, how investors see this company because with revenue up 28%, but earnings per share missing the estimates by about 14% and operating margin going down from 43 to 31. It's just, you know, it's a little unsettling. I think people want to know, you know, when am I going to see a return on my investment? Because, you know, we've seen meta take some big shots in the past. You know, this company used to be called Facebook and they're not really big in the metaverse anymore. They changed their ticker to that, but they're not that big in the metaverse, right? They take a big swing on on some other things that haven't paid off. So they're kind of known for, you know, putting, putting it all out there. And then when they go for things. And I think it's a good thing because when you hit, it's huge. But they, you know, there's always that question of, are you priced to perfection? Are you going to hit every shot? And they're not going to hit every shot as we've seen. And so, you know, investors are a little bit sketchy on this and we'll see how it plays out. I think it's probably going to work out just fine. And you're probably going to look back at this as a, a good opportunity to buy meta stock. But they're definitely being punished for this spin compared to some of their peers, that's for sure. This was a great company with a big black cloud over their head with this lawsuit, the uncertainty that has now been mitigated, I think free. This frees this company up to. Sure, it's still got the same issues with AI and CapEx spending and free cash flow that all these other hyperscalers do. But this is a company. And you're right, the name change, I think they should change it to Instagram. Frankly, I think that that would be a way better name for anyone than, than anything else someone's thinking. But this is a company that has navigated this. And just like Google alphabet, a year or 18 months ago, when that black cloud got lifted from from all this litigation, this stock soared. And probably the most disappointing part of it is the underperformance of the stock. Since this this lawsuit has been settled. Because think about this landing. They get to be the shining light on the hill. They get to put out that full page ad saying, everyone should come join us in what we're doing, parental controls and, you know, restrictions for under 18. Well, people, kids under 18, they're not the purchasing power people anyway. So that's an easy one. Parental controls. They've done minimum damage to their business while putting all these restrictions and $1 billion a year that they have to pay. Frankly, that is just not a lot of money for them to put out. So, Landon, this black cloud that's now lifted, isn't that the bigger issue here right now, at least in the short term for meta, I understand free cash flow CapEx. They've got to be a little more responsible there. But this black cloud was big hanging over them. Landon. Yeah. And I tell you what, a lot of times when it comes to, you know, investing in stocks, people learn, you know, buy the rumor, sell the news, and it works in reverse. On bad news. We're not seeing a huge move like you, like you talked about on this sort of relief of, okay, we got the answer. And it's it's something that I would have expected, like you said. I mean, I think that investors hate uncertainty even more than certain bad news. And this may not be that bad of news, but it's, you know, it's never good to have to pay out money. But the fact that, okay, we've got our answer. We know what the damage is. Plus, like you said, you can spin it. There's a little silver lining here. We can look like the the white knight. And we're going to, you know, protect kids and all that. You know, that obviously that's going to be a positive for them as well. But yeah, you would, you would normally expect this to rally a lot more than it has just based on the lifting of the uncertainty. The black cloud is gone. Okay, fine. It's raining, but it's not storming as bad as we thought it would be. And so yeah, absolutely. I think this is this is definitely good for investors. Definitely good for the company. They can put it behind them and they've got you know, they've got a lot of interesting things coming. But you know, overall, absolutely. This is this is a strong company that's been performing well. I'd love to see an Instagram name change that would be incredible. That's carrying the company. I think that really you just got to as an investor, you got to put this behind you. Hopefully some of the others come along. I think that they're trying to negotiate that. So that really whatever pain points hits them, hits meta hits everyone else, and then they can still be seen as the leader come out on top. But yeah, I mean, they've done an unbelievable job of growing and becoming the number one social platform in the world and helping people advertise and make a lot more money on that platform through AI, through all the CapEx that they're spending. And so, you know, great positioning for this company and, and a lot of uncertainty has been lifted. So I would not be surprised if you start to see the needle, the stock ticker, start to move in the right direction for investors who've kind of paid, paid a little bit in pain over the last few weeks, I wonder if part of it is though, Landon, with the worry that, you know, like you said, okay, it's not storming, but you know, there's potentially more rain with accusations from meta where you're talking about the world over, you know, overseas, they have different bands in different countries. And, you know, maybe the worry is that it's going to be a little bit of whack a mole. In dealing with its regulations around kids and social media. And so investors are like, when it comes to the mag seven, we're putting this on the back burner. I don't know if you have a thought on that, do you? Yeah. I mean, I could see that. Sure. That's the argument. But you know, the big one is, is, is behind us, right. The US, that's the big one. And so, you know, you can, you can start to do a little math on what if this happens here and there. And you know, what if what if TikTok or others do play along, don't play along. And so there's some uncertainty there. But I think the biggest one is there is there's a, there's a number in the formula now, right? The US has put a number meta and the US in the states have put a number together. We see what that equates to. If you want to do a little, you know, extrapolation and figure out what that is globally or, you know, speculate somewhat fine. But the uncertainty is gone because, you know, it could have been a bigger number. It could have been a much harsher, harsher type of outcome. And so I, I think knowing what the bad news is, is generally really good for a stock versus having this cloud of an unknown bad news hanging out there. You know, also something that we didn't talk about totally off topic. They've got this new AI agent platform coming out. I think they're calling it hatch. It's going to be interesting. It's just one of many that are coming out now. It's, you know, this is all for businesses and personal use that will, you know, help people utilize AI more. I don't know if they're going to compete. Well, I think Dropbox has the win right now, but they're all going to battle each other. And so that could be a new source of revenue coming in. And it's just another classic meta play. They've got all these different things they fire at some of them hit, some of them don't. But the ones that hit really pay off. And so as a meta investor, you just kind of have to take it, you know, as part of the investment is there's going to be some shots fired that miss, but the hits are going to be great. So that's why you got to just relax on the CapEx and relax on everything else, because they take measured shots and they're usually like ten to ones and sometimes they miss. So just hang in there. Investors. That's my that's my theory there. All right. Thank you. Landon. That's