Several tech stocks have taken a beating this week, and no Silicon Valley giant has been hit harder than Meta. On the latest Pivot podcast, Kara Swisher and Scott Galloway discuss why Mark Zuckerberg’s pivot to virtual reality doesn’t seem to be resonating with investors.
Kara Swisher: There are Big Tech winners and losers in this week’s earnings, and Alphabet is making it look as easy as ABC. Oh, wow. Producers, thanks for that one. Google’s parent company reported blowout earnings in the fourth quarter and beat analysts’ predictions. On Tuesday, Alphabet announced a 20-for-one stock split. But they weren’t popping corks all over the Valley. Shares of Meta, the company formerly known as Facebook, fell more than 20 percent, in part due to the impact of Apple’s privacy changes. Also, issues around growth; also, the money they’ve been spending on the Metaverse. That brought down the shares of other tech giants, including Twitter. Facebook’s number of daily global users dropped for the first time ever, by one million. And again, the spending on Meta is insane — they lost $10 billion on that division, the Reality Labs division. And 2022 could bring challenges for both Alphabet and Meta. The Senate is considering a bill that would force them to pay news publishers, similar to the Australian law that took effect. Zuckerberg blamed Apple’s anti-tracking feature for the losses, but the big thing was this $10 billion cost for the Metaverse investment. So what do you think about the situation?
Scott Galloway: This is the quarter that Google disarticulates from Facebook, much less Pinterest and Snap. Search is its own form of communications and advertising that continues to just grow. But even at scale, the ad-supported model seems to be under pressure. Facebook, for the first time in 18 years, had a decline in daily active users. It’s never registered that. So just some positives because I’m always critical of Facebook: Mark Zuckerberg is a brilliant business person. He’s doing exactly what he should be doing, and that is, he’s making a staggering investment in trying to pivot the Titanic and finding something big enough to replace what he sees as the sun passing midday on their core business model.
Swisher: He’s also bored with it, right? You can feel it.
Galloway: He’s doing exactly the right thing strategically. The problem is the tactics make no sense. The people in this universe are not impressed with the universe he envisions, and specifically the portal. One of my predictions in November of 2021, when I made 2022 predictions, was that the biggest failure in tech-product history might be the Oculus. The Reality Labs group grew from $1 billion to $2 billion, but to spend $10 billion to get to $2 billion … If he pulls it off, it’ll be one of the most impressive feats in — not even corporate renewal — but vision around maintaining growth. I don’t think they’re going to. I think this thing is already a giant flaming bag of shit.
Swisher: Well, he’s got some pattern-matching when they move to mobile, so it feels like that’s what he’s thinking about. But he really is spending.
Galloway: You can’t argue that the guy isn’t bold and isn’t a visionary. But the two words that are missing from the narrative, or your narrative around the problem and why they have hit a wall here — the first word is Tik and the second is Tok.
Swisher: That’s another thing — I left that out. They talked about TikTok, the audience issue.
Galloway: TikTok has learned from Facebook. The majority of the complaints I see about TikTok are creators upset that their content got taken down, so they’ve pivoted the other way. I want to be clear, they have problems, but directionally, I think they’re more about joy and creativity, as opposed to arguing and calling other people out and teen depression and all this shit. So I’m a big fan of TikTok. If it can disarticulate itself in a credible way from this fear that it could be weaponized on a moment’s notice by the CCP, it will probably be one of the ten most valuable companies in the world in the next 24 to 36 months.
But keep in mind what happened with Facebook when you’re talking about numbers. In five minutes, after the release of the earnings and the missed numbers, Facebook shed the value of Pinterest, Twitter, BMW, and Mercedes. It lost $180 billion in market capitalization. And I think money is power in a capitalist society and a signal of their channel power, which is what Lina Khan says you should focus on.
Meta, when it reports bad earnings, loses the value of BMW, Mercedes, and all of social media, except for Facebook and Google. My point is, people don’t recognize just how incredibly unhealthily, awfully powerful these companies are.
Swisher: I don’t know which they’re worried about more. Is it TikTok, is it the Apple thing? Or the Metaverse? The one thing that it shows, and this is something I’ve mentioned before, but Mark has always said they have competitors, and they’re not a monopoly. With TikTok doing so well, I think they actually have a very good argument in that regard. One thing that was interesting was his quote: “Although our direction is clear, it seems our path ahead is not quite perfectly defined.” So the direction is not clear, right? I wrote a column that said, “You’d imagine $10 billion would buy a better map.” So we’ll see what happens with this company. It’s very … there’s a lot going on here.
Galloway: The other problem they face is, when you go to work for Exxon or Altria, you make certain moral compromises. But here’s the thing: They’re great employers. They pay their people really well. They invest in their human capital. And that’s what makes the trade-off a trade-off.
Swisher: But people are embarrassed to be working for Facebook. I know they are.
Galloway: But they’re willing to wash over that embarrassment with Benjamins. As long as the stock keeps going up and you have a four- or five-year vest and within six months of joining, you’re like, “Oh my gosh, I got a million dollars in stock. That means a quarter of a million a year in additional comp that I’m vesting.” But then you wake up two and a half years into your four-year vesting cycle and you’re like, “Oh, that 2 or 3 million dollars and options I had is now worth $700,000.” You suddenly find that your moral compass begins to burn a little brighter. When it’s raining money, it blurs your vision. A lot of employees at Facebook are going to find new clarity and all of a sudden find their moral compass when the stock is down. I think they’re in for a rough year because I think you’re going to start to get data back on the Oculus, or Quest, or whatever the fuck it’s called.
Swisher: You know, a lot of people like it. I’m going to push back. I think a lot of people are excited by the Oculus.
Galloway: Name someone under the age of 25 who has been found with an Oculus.
Swisher: That’s a fair point. But I’m saying it’s not a bad product. Like, I usually whack their products. It’s not a bad product. It’s a good product. I have one I was using, it’s great.
Galloway: For $10 billion?
Swisher: I agree, it’s an expensive good product, so we’ll see. It’s not AirPods. I’ll tell you that. They’d be lucky if it was AirPods, right? That’s an unqualified hit.
Galloway: The basis of biology is survival and propagation. And the reality is, we spend 90 percent of our attention and our evaluation of another person nonverbally through aesthetics. And 90 percent of that energy and evaluation goes to one region that is 7 percent of our person and that is our face. And so people are very particular: glasses that bring up the height of my cheekbones, which intimates that I’m less prone to infection; a strong jawline, which means I’m more violent and can protect your children; facial hair, which says that I’m virile, whatever it might be. And this thing, when you put it on your head, it says you’re into magic and drive a Mazda and don’t have sex with me. And 40 percent of the people who put this on their head feel nauseous. So Meta has denied and ignored a basic instinct among people.
This transcript has been edited for length and clarity.