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Around the Desk: This is where we at Avory think out loud, challenge narratives, and look for signal through the noise. Each episode, the Avory & Co. team dives into what’s moving markets, how companies are performing, and where opportunities may be forming. We break down earnings, macro trends, and investor sentiment — all from the lens of a concentrated, high-conviction portfolio.
*** The views expressed on Avory Podcast: Around the Desk are those of the hosts and guests and do not constitute investment advice. This podcast is for informational purposes only and should not be relied upon to make investment decisions. All investments involve risk, including potential loss of capital. Avory & Co. may hold positions in the companies discussed.
Speaker: All right, welcome back
to Avery Around the Desk podcast.
I'm Sean Emery, founder and
chief investment officer
here at Avery & Company.
You know, today we're talking about Meta.
Uh, and I think, you know, Meta has one
of the most interesting stock debates in
the market right now, you know, because
the thing that I think investors are
most worried about could be, again could
be, the exact thing that strengthens
the business over the next decade.
We're investors, right?
And the idea that you're looking
beyond just a couple years, a couple
months, a couple quarters, and it's
really, you know, if the market closed
today, would you be comfortable owning
these assets over that timeframe?
And I think there's a lot of companies
in the markets that are doing well
today that you would probably say no.
And then you have something like Meta,
which has showed up time and time again
over the last decade all through, you
know, the various transitions, whether
it's, you know, desktop to mobile, uh,
stories, reels To the evolution that we're
facing right now around AI, all of which
has led to pretty interesting dynamics
there, and I'll share some of that today.
I think the market sees a company spending
aggressively on AI, aggressively on
infrastructure, aggressively on data
centers, aggressively on GPUs and compute.
Obviously, all that's combined.
But the question I want to explore
today is a little bit different.
You know, is, is Meta's CapEx a burden,
or is it really becoming, you know,
that competitive advantage, that
moat, um, that can help sustain itself
for, you know, you know, a long time?
A true compounder in the, in the,
in the full essence of that word.
You know, here again, you know,
our goal on this podcast is to open
the aperture of our conversations.
Conversations we have on investment
committees that we sit on.
You know, conversations we talk about
w- on podcasts and, you know, other
podcasts around the debate between,
you know, a company like Meta or, you
know, other companies or just, you know,
stuff that we talk about when we're
on Bloomberg TV or anything like that.
So, you know, I think if the market has
it wrong on Meta, the stock could be
misunderstood in a pretty meaningful way.
Um, you know, it's the cheapest of
the bunch of the Mag Seven, and I'll
talk about it, but it's the fa- second
fastest-growing, only behind Nvidia.
It has the strongest gross margins
of any of the Mag Seven, but nobody
really f- you know, frames it that way.
So for the next fifteen minutes, I'm gonna
walk through six questions on Meta, what
the market may be missing, why Mark, you
know, Zuckerberg's track record, I think
matters once again, and whether the,
uh, you know, the distribution flywheel
is getting stronger, how to think about
the CapEx cycle, what the free cash flow
path could look like over time and, and
you know, what we're watching from here.
At the end, you know, I'll talk
about how we think about valuation
discipline, where we, uh, would
get a little bit more aggressive.
You know, remember, we trimmed
this significantly by about seventy
percent in, you know, early twenty
twenty-five when it was getting AI love.
Um, you know, going from, you
know, roughly, you know, uh, you
know, high teens percentage of
the portfolio down to, you know,
single digits, mid-single digits.
So, you know, we'll see what we do there.
Uh, but we're really, again,
opening the conversation around
our, our thought process.
First, before that, a quick disclaimer.
You know, this podcast is for
informational purposes only,
educational purposes only.
Nothing discussed should be considered
investment advice or recommendation
to buy or sell any security or
a guarantee of future results.
You know, Avery and its clients may
own positions in companies discussed,
including Meta, which we do own.
So please do your own research.
Consult with somebody Else before
making any investment decisions.
Uh, with that, okay, so, you know,
let's-- we got that out of the way.
Let's get into Meta.
You know, the simple version of my view
is this: don't bet against Zuckerberg.
You know, I know that is, uh, you know,
betting on a, a person, but person,
you know, individuals run companies.
They make decisions.
They have a proven track record
of their decision-making.
And then you obviously have to look at the
data that, you know, articulate whether
those two things are converging or not.
Now, again, that doesn't
mean every decision from, you
know, Zuckerberg is perfect.
It does not mean Meta is
always cheap as an asset.
Uh, and it definitely does not mean,
you know, investors should ignore,
you know, valuation or execution risk
or overspending or underspending.
I think both of those
two things can be true.
You know, Zuckerberg has shown an
unusual ability, I think, uh, uh, to,
you know, to go all in when the stakes
are high and then rein in spending
when, you know, the time comes.
You know, we saw it with product,
uh, over time, where he, you know,
starts a product, closes the product.
We saw it a little bit with cost
structure, where, you know, he,
uh, um, has, you know, increased
cost and then, you know, decreased
cost and become more efficient.
You know, we saw it again
during the year of efficiency.
Uh, and now the market is asking
whether we are seeing it again
one, uh, you know, within AI.
You know, Meta today is a company
with billions of users, one of
the strongest ad businesses in
the world, platforms in the world.
Multiple, I would say multiple
under-monetized assets, I'll
get into that, and a very large
AI infrastructure build-out.
You know, one of the biggest consumers and
owners of, um, you know, GPUs from NVIDIA.
So there has to be some residual
value there that, you know, maybe
they're not getting credit for.
Uh, there's maybe some undisclosed, you
know, uh, you know, um, uh, details on
We'll talk about it with AMD in terms
of, you know, the deal they made there.
So today's topic again is, you know,
Meta's, you know, a hundred and twenty,
a hundred and thirty, forty, fifty,
sixty, seventy billion dollar question.
You know, is that a burden today?
Is it a moat for tomorrow?
So let's walk through, you know,
maybe these six questions real fast.
You know, what is the market
missing about, about Meta?
I think that's kind of the first question.
You know, in my view, and I've
talked about this numerous times
on, you know, various podcasts.
I was just on the Pitch to PM podcast.
Shout out to Doug Garby,
does a great job over there.
Uh, in my view, look, Meta remains
one of the most misunderstood
compounders in the market.
It kinda has been for quite some time.
Full disclosure, personally, in
my, you know, personal account,
I've owned it since the IPO.
Um, you know, I've been able to, you
know, withstand all the volatility, 'cause
again, it, it's all about, you know,
three, four, five, ten-year cycles versus
what's happening in the here and now.
But, you know, understanding
what's happening in the here and
now to understand whether they can
compound over, you know, over time.
You know, when people talk about the Mag
Seven, Magnificent Seven, Meta is often,
you know, not in that same, um, premium
conversation as some of the other names.
But if you look at the actual
business performance, it is
very, very hard to ignore.
You know, Meta is the second fastest
growing company in that group.
Again, I'll repeat, Meta is the
second fastest growing in the
Mag Seven, only behind NVIDIA.
They're growing thirty percent.
Growing thirty percent in what
some have characterized as
a weaker economic backdrop.
Obviously, you know, if you read our
Investing with Data newsletter on
Substack, then you know we have been
very explicit about the consumer's
actually stronger than for whatever
reason the market's perceived.
Again, if you used, you know, data
and you're focused on it, uh, I think
you have seen that, you know, the
economy has stayed and the consumer
has stayed resilient, and that's
proven to be very, very true, and
we're at least proud about that.
Uh, it has one ofâ¦
Back to Meta, it has one of
the strongest gross margin
profiles in the market broadly.
The, the stat there is
Meta has the number one.
It has the highest gross margin
of any Mag Seven company.
A, a repeat again, second fastest growing
company in the Mag Seven, highest gross
margin of any of those companies combined.
If you did like operating, you
know, margins as well, you know, you
would get to similar place there.
So I think it's earned the right.
That's, that's the point.
I think it's earned the right to invest
and then rein in when they choose.
Um, you know, not that long
ago, again, Meta was growing
revenue in the single digits.
Now the business has re-accelerated
meaningfully at enormous scale.
We're talking two hundred plus
billion dollars of revenue.
I think, uh, you know, that
c- conversation matters.
This isn't a, you know, sub-scale
revenue base that's compounding.
The market is not doubting, I think,
that Meta is a great business.
I think most people think, you
know, this is an e-excellent,
uh, you know, financial business.
I think the, the market is, is doubting
a little bit, uh, or a lot, you know, the
free cash flow and how much will be left
over after this AI infrastructure cycle.
We have a view on that, and I think that
is the, you know, the key disconnect here.
You know, a year ago, investors were
focused on, you know, EPS revisions,
earnings per share revisions, you
know, margins, and also the recovery
in the core advertising business.
Today, the market has shifted towards a
free cash flow f-framework, especially
looking out, you know, beyond this year.
And I think that creates
a interesting setup.
You know, you, you can have earning
revisions going up, revenue growing
strongly, and a stock that is,
you know, not necessarily, uh,
loved, and I think a lot of that
has to do with their CapEx, right?
And, and I don't think that it's, uh, um,
you know, breaking news here, but, you
know, I think it's important to understand
what the market's perceptions are.
So the market may be missing two
things, I think, at the same time.
First, the core business is stronger
than people, uh, appreciate, um,
als- in, in, in like absolute terms
and also relative to its peer group.
So logically, for me, I think,
you know, that's a great setup.
Second, if, you know, if CapEx
eventually plateaus while revenue
continues to compound, you know, the,
I think the free cash flow inflection
could be even more powerful than,
you know, most people are assuming,
and that is ultimately the setup.
The question is not simply
is Meta spending a lot?
I think the better question is, is Meta
being penalized today for spending that
may strengthen the moat and create a
much larger free cash flow base later on?
And that ultimately is the debate So
let's get into, you know, question two,
which is, you know, why does Zuckerberg's
track record even matter here?
You know, it's about management, right?
That's the question.
With Meta, you cannot separate the
investment thesis from Zuckerberg.
I don't think you should do that for any
company, but Zuckerberg specifically,
given, you know, how prolific he has
been as a founder CEO for arguably
the biggest company in the world.
That may sound obvious, but I
think it matters more here than
it does with most companies.
Meta is going through a very
large capital allocation cycle.
The company is spending
aggressively on AI across the board.
You know, when a company is
making decisions at this scale,
you have to ask yourself, "Do
we trust the capital allocator?"
Not blindly.
You know, blind trust is clearly-- that's
not a process, you know, I think, but
track records do matter, and you should
abide by that to some degree and make sure
that the thought process there is logical.
Zuckerberg has built Meta into,
again, a trillion-dollar business.
A trillion-dollar business.
It's, it's, you know, kinda funny to say.
Uh, he has navigated platform shifts,
competitive pressure, you know,
privacy changes, again, regulation, and
repeated, repeated market skepticism.
Uh, he has also shown that,
again, when cost structure needs
to change, he can move quickly.
So the year efficiency was important.
I think it, it, you know, it reminded
investors that Meta is not permanently
locked into runaway spending.
There's a history of investing
aggressively, but also history of pulling
back when required, and that is, I would
say, the central part of this debate.
Uh, you know, the market is looking
at AI CapEx and asking whether this is
another version of uncontrolled spending.
Uh, for me, but I think, you know,
AI infrastructure is different
because it directly touches the core
business, and that is the disconnect.
That is the disconnect.
It touches recommendations on Instagram,
on Facebook, on, you know, eventually
WhatsApp, on Threads, uh, which is a top
ten app in the App Store that nobody seems
to be talking about and under-monetized.
It touches engagement
across all those platforms.
It touches ad targeting,
which is advertisers, which
is the customers of, of Meta.
It touches content discovery Um,
which is super important, right?
Uh, it touches creative tools.
It touches, again, WhatsApp, Instagram,
Threads, Messenger, uh, and then
the Ray-Bans kind of like wearables
ecosystem, which, um, you know, on one
side people criticize the Metaverse
investments, but Ray-Bans and the success
there, uh, for the wearables category
has been a home run, um, for them.
You know, it's not very meaningful
today from a revenue profitability
standpoint, but from an ecosystem building
standpoint, I think, again, he's earned
the right to continue to invest there.
He just launched a new, um, you
know, pipeline or product suite
of, you know, Ray-Ban glasses.
They actually look really cool, you
know, partnered with, uh, you know,
the Kardashians, uh, so smart all
around there, and also partnered with,
uh, Lux- Lux- Luxottica for those, so
touching kind of like, you know, um
Culture meets, uh, sports with some
of the Oakley, uh, Ray-Ban glasses.
So, you know, really cool stuff.
If you haven't used them, try them.
They're really, really powerful
from a, uh, visual, uh, standpoint.
You know, the camera on those are
really, really good and high quality.
Um, so again, when I say, you
know, don't bet against Zuckerberg,
I do not mean ignore the risk.
I mean, recognize that this is exactly
the kind of platform shift where Meta
has historically been willing to invest
before the payoff is, is, is obvious.
You know, the market may want certainty
around, um, you know, Meta's spending.
Um, I would say they
have earned that right.
Again, I sh-- I gave
you the numbers earlier.
Thirty percent growth on highest margins
of, gross margins of anyone in the space.
Uh, and that's, I think
that says a lot, you know.
But, but again, by the time the certainty
arrives, I think the, the stock may
reflect that over time and, you know,
we're there to, uh, to monitor that.
You know, number three is
Meta's distribution flywheel
still getting, uh, stronger.
Um, you know, to me, this, this is
the part of the Meta story that still
does not, uh, get enough credit.
Meta has one of the largest, you know,
digital distribution networks ever built,
you know, across Facebook, Instagram,
WhatsApp, Messenger, Threads, Meta AI,
uh, which no one, you know, uh, again,
is given credit for even though again,
it's, you know, has 10X'd I think here in
the last, you know, six to twelve months.
Um, and the company reaches, you know,
billions of people, three point five
six billion, I think was the, w- was the
latest number across their family of apps.
That's like forty something percent
of the, the world's population.
Uh, so that distribution I think gives
Meta a, you know, a real major advantage.
Um, if Meta launches a product, you
know, it can place that product in
front of an audience most companies,
you know, really could never access.
So that is such an important thing.
It matters for Threads.
That's how Threads, you
know, became what it was.
It matters for, I think, WhatsApp's
monetization going forward.
It matters for Meta's AI, AI
assistants that eventually, you
know, will probably be, you know,
more, more part of the platforms.
I think again, WhatsApp is a very
powerful product that has a lot of
business and consumer use cases and, you
know, wrapped in some sort of agentic
tooling I think would be powerful.
And, you know, most importantly,
it matters for advertiser tools,
and we're seeing like Advantage
Plus do really well there.
Um, you know, the market sometimes
talks about Meta as if it's just
Facebook and Instagram ads, but Meta
has multiple assets, again, like I
said, that are under-monetized or still
early in, in that monetization phase.
Um, you know- Again, WhatsApp and
Threads, Meta AI, I think are all
those that can eventually be monetized.
But ultimately, again, distribution
then leads to, you know, the
ability to execute there.
Um, and then the flywheel
starts to really spin, right?
You know, AI improves the recommendations,
better recommendations improve engagement,
better engagement improves advertiser ROI.
Then you have, you know, better
advertiser ROI attracts more spend,
kinda what we're seeing today.
More spend funds more AI
investment to then, you know,
increase the recommendations,
increase the engagement ROI.
Again, and that cycle continues.
So I, I think that is kinda being
loft- lost in the shuffle here.
So the question is, is Meta's distribution
base becoming more value because of AI?
I think the answer is definitively
yes, and it's showing up in the
numbers, but the numbers aren't--
they're not getting credit for that.
It's as if, you know, the thirty
percent growth just came outta nowhere.
Um, and if that's true, again, I think
the market may be too focused on the
cost side of AI and not focused enough
on how AI is strengthening the revenue
side and whether you think that's gonna,
you know, be consistent over time.
Um, you know, if they continue to grow,
you know, even at half this rate, you
know, they double their revenue base
over the next five years Question
four, a couple more questions here.
You know, is CapEx the burden or the moat?
Um, and I think it's, you know, one
of the more important ones here.
Right now, the market is
treating their CapEx as a burden.
I think that's understandable.
I think the numbers are really large.
Uh, investors need to
separate two questions.
I think the first question on that
is, you know, is Meta spending a lot?
I think the answer is yes.
The second question is, is the
spending strategic, uh, and
is it strategically necessary?
I think that's where the debate gets
a little bit more interesting and a
little bit more, um, uh, separated.
It's very easy to understand how a
hyperscaler, hyperscaler is somebody,
you know, that is building these data
centers, buying all the, you know,
the compute, and then reselling that
to, you know, other vendors, i.e.,
you know, Google Cloud, Amazon AWS,
and Microsoft Azure, Oracle, uh, some
of the, you know, Neo clouds like
Nevius and, and, and some others.
Um, and so those are very direct
buy, resell, make a margin.
In Meta's case, since they don't resell,
it's kinda like, where did it go?
But again, I go back to the margin
and revenue story, really the
revenue story, um, 'cause we have to
depreciate these assets over time.
Um, but again, that's where the, the, the
debate gets a little more interesting.
You know, Meta's recommendation engines
are a core competitive advantage.
They drive what users see, how
content gets discovered, how ads get
targeted, and really how engagement,
uh, is sustained on the platform.
And that's the lifeblood
of this business, really.
So if recommendations are central to
the business, then the compute behind
those recommendation is not just a cost
center; it is strategic infrastructure.
Again, the compute behind those
recommendations is not just a cost
center; it is strategic infrastructure.
And that's why the own versus
rent debate, I think, matters.
If you rent all your infrastructure from
somewhere else, you may gain flexibility.
And again, I think most people buy, you
know, sixty, seventy, eighty percent of
their compute internally, and then they
rent out some of the capacity, so they do
have, um, you know, marginal flexibility.
But again, if you rent all your
infrastructure from someone else,
you gain that flexibility, but you
give up control and margin leverage.
Snap, I use Snapchat as an example
because I do think, and again, we don't
own Snapchat, but I think it's a very
powerful, you know, product platform that
has a billion users on it But it-- they're
renting their compute from a hyperscaler.
Uh, in that case, you are structurally
paying someone else for the infrastructure
that powers your own product.
Uh, Meta, again, is in
a different position.
Um, you know, Meta and Google are really,
you know, two of the few companies
that can directly monetize their
own compute on their own platforms.
You know, Amazon does it a little bit,
but, um, you know, generally speaking,
you know, the recommendations on Google
and Meta are, are, are exactly that.
Uh, I think that's an
important distinction again.
You know, they're not simply, you
know, buying compute to resell it.
You know, Google does that,
but Meta, i-it, you know,
doesn't, at least as of today.
Could happen in the future.
They're using compute to improve products.
They're using compute to
improve their product.
Uh, and that already has, you know,
billions of users and enormous
advertising demand, so it's not as
though they're not taking that compute,
that infrastructure, that knowledge,
that intelligence and then, you know,
using it, you know, uh, immediately.
So that's why I think owning
infrastructure can make sense.
Now, the real risk, uh, it's always
to th- good to think about risk.
The scale of spending is clearly enormous
and, you know, it's bigger than we've
ever, you know, could have imagined.
You know, our work suggests that, you
know, Meta's CapEx could peak around,
you know, '27, '28, potentially around
that hundred and sixty-five billion
area with a kind of like through
cycle steady state number closer to,
you know, a hundred and twenty to a
hundred and thirty billion annually.
And those are, again, very large numbers.
But one important detail is that
a meaningful, you know, portion
of this CapEx increase appears to
be, you know, price-driven, not
necessarily p- you know, unit-driven.
You know, we know unit co-
or memory costs, for example,
have risen significantly.
If memory and other components, uh,
are inflating, you know, the cost
of AI racks, uh, then someday, you
know, s- today's CapEx pressure may
be cyclical and, you know, we, we,
we reach the other side, but we're
modeling in, you know, today's prices.
So if supply opens up, you
know, the spending profile
could normalize completely.
Uh, you know, that may be years out.
Um, you know, again, we, we have
a little piece, uh, you know,
coming out here on, you know, our
Investing with Data newsletter, where
we talk about, you know, memory.
So go check that out.
Um, and why maybe memory
isn't, um, you knowâ¦
It's very much a supply bottleneck
for sure, used incredibly,
uh, uh, on the training side.
But when you think about inference,
which most expect to be a much
larger market, um, you know, there's
other companies out there that
are doing some interesting stuff.
So go check that out.
You know, the market sees, you
know, CapEx going up assumes free
cash flow is structurally impaired.
I think that is the debate.
But if CapEx peaks, plateaus, and
normalizes while revenue keeps
growing, then the same thing hurting
the stock today could, you know,
become the catalyst tomorrow.
So the q- the question investors I
think need to ask is, you know, is,
is Meta overspending or is Meta buying
control of the infrastru- infrastructure
layer that powers, I think, you know,
the next, uh, you know, phase of their
growth across, you know, intelligence
and recommendations on their core?
And then, you know, things like Meta
AI being infused across their ecosystem
so that personalization starts to show
up in Meta, uh, in, in, in Facebook.
Personalization starts to show up in
Instagram, whether it's for the consumers
that are, you know, on there, um,
scrolling and discovering, or it's for
the advertisers, or it's in WhatsApp,
whether it's for the businesses on
there or the consumers out there.
So again, you start to hear a little
bit of how AI can get infused across
three point five six billion daily
active family, you know, app users.
So that's the heart of, uh, you
know, I think the stock debate.
Um, question five, you know, what
is free cash flow path from here?
I'll be quick here, but you know, the
fifth question is about free cash flow.
So it, you know, it's Where the market
has, you know, has, has come focus
on, in the near term, free cash flow,
uh, you know, will be pressured.
Um, and we think, you know, it peaks
around twenty-seven, twenty-eight.
And, you know, optically, you know,
that is, you know, an investment cycle.
Sometimes inâ¦
you know, investors don't like investment
cycles if they don't have what they
deem as clear visibility on the outcome.
Uh, again, I think I've made a case
of, like, where all this spend goes.
You know, but if Meta is moving through
a large in-infrastructure cycle,
then the market, uh, may be focusing
on the worst point in the cycle and
extrapolating that a little bit too far.
Again, uh, we think this,
you know, free cash flow then
recovers as that depreciation
and CapEx starts to normalize.
And then you start to get free cash
flow starting to get back up to, you
know, eighteen to twenty percent of, of,
uh, revenue, uh, and even beyond that.
And again, if you have any cyclical
normalization in pricing, you
could even go, um, even, you know,
it, it could look even better.
Um, but I think, look, if, if management
gives investors any signal that spending
is approaching a peak, um, even if that,
you know, signal comes, you know, twelve
month, eighteen months in advance, I
think, you know, quickly the market,
you know, starts to like the story.
Uh, so the question again are, you
know, are investors looking at temporary
free cash flow pressure or permanent,
you know, free cash flow impairment?
I think that distinction matters between,
you know, what your side is on that.
Um, and again, we, we s- we, we stay
more on the, uh, um, temporary side of
it, just given the fact that, you know,
clearly AI is improving their revenue
trajectory here, and we expect, uh, you
know, this next quarter to be the same.
You know, what are we watching now?
Which is really this, you
know, the last question.
What are we focused on?
You know, there are several things
I'm, you know, watching closely.
You know, first is that
CapEx plateau signal.
You know, if Meta begins to communicate
the infrastructure spending is
approaching a peak, I don't think
that'll happen this next quarter.
But, you know, at the same time, I
do think It's in the not too distant
future, um, then, you know, we
don't need the CapEx to collapse.
It just needs confidence that the
rate of growth in CapEx is slowing.
Second is revenue growth here.
If revenue continues to come in ahead
of expectations, I think that starts
to, you know, change the debate.
I think theâ¦
Is if the market comes to the idea
that their AI is embedded in their
product and it's showing up on the
revenue side, then I think that improves
the, uh, the, uh, perception there.
You know, if they start to give more,
you know, context around meta AI and
the demand there, we're seeing, you
know, really explosive traction in
terms of web traffic and app downloads.
Uh, WhatsApp, if they start
to articulate, you know, some
of the agentic tooling there.
Threads, you know, monetizing that.
Um, it's a scaled, you know,
social product out there, you
know, very similar to, you know, X.
Um, Ray-Bans, you know, they launched
this new product suite, so let's
see, you know, the traction there.
So all those things.
I mean, there's a lot
of stuff going on there.
Um, there's also the, you know, the risk.
The risk, um, you know, people have
articulated maybe an equity raise to, you
know, to get more, uh, uh, cash, um, in
to then fund more AI infrastructure build.
You know, I would say, you know,
that would be a net negative, but
it would be, you know, somewhat
temporary, a one-time hit, let's say.
Um, and then, you know, they would
have to articulate, you know, what that
is, why, you know, why they did it.
Um, and people would then, you know,
have to justify, you know, one way or
another what their view is on that Um,
so again, this is not a risk-free story,
you know, but the, uh, I think the best
investment debates are not, uh, you
know, about, you know, pretending risks
do not exist in something like Meta.
You know, there's certainly risks.
Um, but you know, at a company
growing thirty percent, eighty-five
percent gross margins, their
core family of apps business has
sixty percent operating margins.
Yes, they're investing in AI, but I think
that flywheel showing up in engagement
and, uh, advertising on the platform and
thirty percent growth speaks to that.
Uh, under-monetized assets
still across the board.
I think AI enhanced the ability
to monetize those assets.
And look, I'm more interested
to, you know, understand, you
know, is this increasing the
moat, uh, across their platform.
You know, their peer groups aren't
spending this much, meaning, you
know, Snapchat can't spend this much.
You know, someone like Reddit
cannot spend this much.
Other platforms that, you
know, drive engagement, um,
I think that's interesting.
So the last thing I would add here
is, you know, valuation discipline.
You know, we've owned
Meta for a long time.
I personally have followed and owned
it again, uh, since IPO in my personal.
And you know, we viewed, um, we,
we saw so many, uh, you know,
different moments like this.
You know, go back to twenty
twenty-two, this thing traded
at eighty-nine dollars a share.
Um, you know, it was one of the
best opportunities of a lifetime,
really, if you think about it.
It's also a good reflection that,
uh, you know, we've, we've talked
about in the past that you can get
some of the highest quality assets
on sale at any point in time.
You know, I use Amazon as the example.
It's fallen ninety percent
three times in its life.
Ninety percent.
Um, so again, valuation matters.
You know, it's, it's one of theâ¦
It's the cheapest of the Mag Seven.
It's the fa-- second fastest-growing
with the highest, uh, you
know, structural margins.
I think that's fascinating.
So that's it.
Let me close it out.
There are, you know,
six questions on Meta.
You know, what is the market missing?
Why does Zuckerberg's track record matter?
Uh, I talked about, um, you know,
Meta's, uh, distribution flywheel,
uh, that I think is getting stronger.
Uh, is CapEx the burden or the moat?
I think, you know, it, it's
somewhere between that.
That, you know, I think it's, uh, it's
a burden today, but a moat for tomorrow.
Uh, free cash flow path,
you know, that's theâ¦
There's no clarity there, obviously.
Um, and I think that's part
of the missing gap here.
But, you know, still revenue I
think, uh, should be acknowledged.
And then what are we watching?
So the, you know itâ¦
Meta, simplest version, one of the largest
distribution platforms in the world.
Core advertising business that
remains extremely powerful.
A multiple under-monetized
across all their product lines.
The bear case is real.
From a free cash flow perspective, but
ultimately I think the AI strategy, uh,
one needs to become clearer to the market.
Clearly they don't understand that
the growth is coming likely from that.
So if they're more, uh, intentional
about their conversation, I think, um,
uh, investors would reward that asset.
Again, not a recommendation, but
something we think structurally.
I hope you like this.
This is, uh, something we're gonna do
more, is kinda like this, you know,
debates, uh, internally of, you know,
some of the positions we hold and even,
you know, some, uh, some views on, you
know, industry themes that are out there.
Uh, like, subscribe if you can.
That's how we know you like it.
This has been, uh, Avery
Around the Desk podcast.
I'm Sean Emery.
Thanks for listening