Meta, you better? You bet!

Meta, you better? You bet!

Written by Julian Wheeler - Partner and US Equity Specialist

Apart from the name, which I dislike as it refers to the biggest failure in the history of this company (all that remains is for Mark Zuckerberg to admit it was a mistake), I am now giving a 'Like' to the stock of the owner of the world's largest social media platforms.

Yet only a month ago, I was describing Meta as "uninvestable" if anyone cared to ask my opinion. Even if the underlying business was doing just fine, the share price was falling as "Mr. Market" was openly critical of their excessive capital spending on the AI treadmill with no clear path to any sort of return. As free cashflow headed deeper into negative territory, the CEO was, as usual, 'not for turning' and the situation appeared to be heading for a repeat of 2022 when it took an open revolt by major shareholders for Zuckerberg to change course.

While you could levy the same complaint against their peers for doing the same, unlike Meta they all have Cloud businesses and customers who were effectively shouldering the burden of 'Jensen Tax' - the seemingly bottomless pit of money flowing from everyone else into the coffers of Nvidia. But hey, money grows on trees when it comes to AI spending, what's the worry? Why pick on Meta - just look at Oracle!

However, the real reason Meta's stock had spent time in the Sin Bin with an avoid label round its neck, was due to the impending lawsuit brought against the company by the entire United States. In it they were suggesting that Meta's business practices amounted to the intentional and wilful addiction of children to their product. The Tobacco industry comparison loomed large and the severity of the potential punishment was assessed in that light; it could run into trillions paid over decades. To everyone's surprise, after only eight days into the trial, a pragmatic decision was reached resulting in an early "win" for both sides on August 25^th. In the settlement Meta has agreed to pay an absolute maximum that amounts to 25% of one year's profit, payable over the next ten. By contrast, Philip Morris was hung out to dry for 40% of its annual profits for the following 25 years!

Just over a year ago, it was Google shares that were the ones in a similar doghouse, ahead of their resolution with the DOJ that in a worst outcome had threatened to force a divestiture of their Chrome Search Engine. The company was also mistrusted by the market for having "missed AI" and 'Search' as we knew it was going to be a thing of the past. In the year following that dismissal, those shares outperformed Meta and the other two Clouds (Amazon and Microsoft) by 60%. So far, from that August date, Meta is already about 20% ahead of the other three.

However, although a relief rally was nice to have, the reason for liking the stock from now on is all about… Muse. Unless you're in the USA you won't have used Muse, (because it is not available elsewhere) but if you haven't heard about it yet you are not paying attention. We only have time for a brief description before you race off to buy the shares.

Muse is a consumer-focused personal agent which will execute tasks that you ask it to do. But this isn't just a Q & A session anymore: I mean it does really useful things, like all those tiresome chores that you have to do online these days. 'go and find me a better deal on my health insurance' 'wait on the line listening to that ghastly "music" and then tell me when the operator answers' 'check all my online subscriptions and cancel any I haven't used in months'.

The more information you give it, the more it can do, cutting across the web and any apps that you choose to connect. It is the first "personal computer in the Cloud" and in two weeks since launch it has become the world's number one downloaded app. It outstripped the daily active users record (DAUs) set by Chat GPT over the same time frame by almost 3:1.

There are going to be two ways to go for everyone else: you either partner with Meta and let them take a small piece of your pie (Shopify, Expedia, Walmart, TJ Maxx to name a few I have seen so far) or you are going to try to develop your own and block them at the door (Amazon has and Google will have something to say surely). For me, the fact that Amazon has announced a block of Muse onto its site is the greatest validation that Meta has REALLY cracked it. What is more, I suspect Muse will find a work around that so that Amazon's "guards" don't recognise it anyway!

All the reviews I have read from seriously 'geeky Tech' people to the New York Times ("I Gave My Life Over to Meta's A.I. Agent and Was Blown Away") suggest this thing is very, very, good. The arrival of Open Claw at the beginning of the year was the catalyst and Zuckerberg realised that a simple Chatbot was now a pretty useless tool; what was needed was a personal valet to a Jeeves standard. The compute power required to run something that would produce that level of consumer satisfaction finally explains what Meta has been doing for this past year while they poured in vast and early capital expenditure on Data Centres and Nvidia chips.

But hold on - surely all the usual suspects will come out with an equivalent product? Yes, I would say that they will certainly try. But consider this for Meta: if you choose to use a personal assistant to help run your digital life; whether that be shopping, sorting and replying to your emails by importance, checking you didn't forget to send a birthday card to Aunt Agatha… in order to get the real benefits and accomplish all that, you are going to trust it with a lot of your personal information (there can be other data you can decide to withhold). But having done that, will you really want to go through the hassle of switching all this to another one to save a few dollars? So, first mover advantage could be a telling factor here.

Still, let's assume that the agent technology becomes commoditised. Then who wins? I would say the company with the best distribution and the stickiest customers. What app is the world's best and therefore in theory the most valuable? It surely must be based on daily usage by consumers and the percentage of customers who stay on it a month after joining. Well, you just read the answer in the question: just minus an 'S'; It is WhatsApp of course.

For years, Meta has only been about advertising revenue from Facebook and Instagram with nothing at all earned from their best product, one that we ALL use every single day. Subscription revenue for the first time coming soon will naturally be margin enhancing, yet on a Price to Sales or Earnings basis, just a week ago, the shares had only been cheaper during the market bottom in 2022. When the market decides to really 'like' this stock, which was as recently as early 2025, it traded above 30x earnings. On earnings numbers I can see, that would give a price target around $950. Can history rhyme? You betcha, Meta!

Next month I will look at the other winners and losers from this phenomenon which more of you will have used by then.

For more background on our U.S. market views, visit the Over the Pond archive.

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