The Problem With Meta Platforms

[] Meta Platforms is burning cash to create the Meta Verse. At some point, investors need to wake up to the voting structure that significantly reduces their ability to protect their capital. [View in browser]( [View in browser]( [] [Godesburg's Haven Investment Letter]( [] [Godesburg's Haven Investment Letter]( [] [Garrett Pic] Dear Investor, [The reaction of Jim Cramer]( to Meta Platforms’ earnings report on CNBC this week is getting more attention than the earnings call from Meta last Wednesday. The company’s free cash flow has plunged from $9.5 billion to less than $1 billion in a year. It is burning through money as Mark Zuckerberg tries to own the Metaverse. It’s just silly. Cramer admitted he was wrong about Meta (kudos for apologizing, but he must do the same for calling a market bottom in January AND March 2022). When asked what Cramer got wrong about Meta, he implied that he was misled by company management (“I trusted this management team, that was ill-advised,” he said.) And: “I trusted them and not myself.” Cramer said he was under the impression that “you just can’t spend” a mountain of money like Meta has this year. That was a foolish assumption, given that there may never be another time to obtain and spend “free money” from the government and the Fed, as we’ve seen over the last two years. Cramer said that he thought there needed to be some level of discipline. He said that he expected discipline from the management team. Again… fundamentals were out the window… In the extended clip, Cramer keeps saying that he screwed up. That’s on the heels of saying in June that the stock had “nowhere to go but up.” (Meta stock is off 53% since June 1). But there’s one more thing that Cramer didn’t mention – and perhaps many people don’t consider regarding META’s management. Zuckerberg’s total control of the company. Breaking Down the Voting Shares Mark Zuckerberg has about a 28% economic stake in the company, according to Reuters. But he has more than 57% of the voting shares. He cannot be second-guessed. He cannot be outvoted. He cannot have someone like Ray Dalio at the world’s largest hedge fund (Bridgewater) or the head of CalPERS (California’s pension system) sit him down and explain that burning billions in free cash flow to achieve his Metaverse dream is a terrible idea. So, Jim Cramer’s views don’t matter much comparatively. Zuckerberg is in control – and few people have properly second-guessed the dual-class voting structures because we just had a 13-year bull market fueled by the Fed’s “inflation targeting.” I’ve warned people about this… for six years. It got to the point that people told me that I was just being paranoid… [The “Founder” controlled movement at Facebook became a public story in 2012]( when the company allowed Zuckerberg to keep control before it even went public. It accelerated in 2016 with the share class split. Again, the math: Zuckerberg owns 57% of the voting rights with just a 28% economic stake. So he can do whatever he wants. Here’s the thing: If anyone wants to buy C-class shares with no voting rights in Meta – they can at any time. But there’s another downside to this that people like Cramer don’t consider. The sheer size of Meta and its place on Index funds effectively force pension funds and many other prominent institutions to fund Zuckerberg’s Metaverse fantasy and the company’s reckless spending – all without any say in its strategy or use of free cash flow. All those people who signed up for Wealthfront or Betterment – young investors who pour all their money into passive investment funds –likely own Meta stock through an ETF and may not realize it. During March Madness this year, the Invesco QQQ ETF will be featured in advertisements during every commercial break. It has a massive stake in Meta. Many investors targeting ESG without the headache of active management – likely own Meta stock through ETFs. In fact, 109 ETFs have Facebook Class A stock. Mutual funds own an incredible amount of META stock. The Vanguard Total Stock Market Index alone owns 68 million shares. Across multiple funds, Vanguard has about $23.2 billion exposure to Meta stock. Yet none of these ETFs or mutual fund giants can ever influence the company's direction. Not one bit. They have purchased – whether they wanted to or not – a non-stop ticket to the Mark Zuckerberg show. It's feudalism at its finest. The History of This Movement Chamath Palihapitiya [argued last week]( that the dual-class system originated with Google’s IPO when Morgan Stanley pitched this system to win the “bake-off” against Credit Suisse, which had proposed a Dutch Auction system instead. Once Google secured that dual-class structure, other tech firms could follow. And follow they did. (Great work, bankers. You created an unaccountable oligarchy.) Since 2012, technology entrepreneurs have increasingly demanded this dual structure for their companies. According to a report from the University of Florida, the number of companies with dual-class shares has increased from 15% to 46% over a decade. I covered this trend a few years ago with Snap Inc. – the parent of Snapchat – [and its IPO in May 2017](. As I wrote at the time, the class-share split was simply egregious. These founders want all the benefits of the public markets – without any risk (the risk being that they make stupid decisions and activists and shareholders FORCE changes. It’s a complete banana republic.) Snap stock has fallen as much as 90% from its September 2021 peak, and no one can shake its founders by the shoulders. How Wrong and How Long, Mr. Cramer? It’s fascinating to look back at articles I criticized for lacking concern about concentrated power like this in the public markets. In 2016, as the class structure split emerged for Facebook, TheStreet.com (Mr. Cramer co-founded this site and wrote for it until 2021) argued that investors shouldn’t care about their lack of voting control at Facebook. Where to start with this article… printed on April 29, 2016. [I wish I could make this up.]( Let’s take a look at the argument here, shall we? “First off, it's not like other successful companies haven't done this. Google parent Alphabet, Zillow, and Under Armour have all issued class C shares in the past.” First, the author is correct in those examples. All three of those companies did create dual-class structures. And look at what has happened to those companies since the release of this article. Under Armour’s founder, Kevin Plank, was scandal-ridden and had to step down from the CEO role in 2019. He’s STILL the executive chairman of the company. Shares are now off 65% in the last year, and I wouldn’t buy Under Armour stock with your money. Zillow’s management had that [$6 billion home-buying scheme]( that went sideways. It had to lay off 25% of its employees LAST November. It’s hard to find evidence of accountability in Zillow’s C Suite. Shares are off about 50% this year. [Google has enough scandals]( to fill nine seasons of an Amazon Prime show. And its Google stock still has a way to go. If it breaks under $92, it’s going to $74. It’s off 33% this year. Second, it’s easy to make this lazy excuse around “everyone is doing it” and cheerlead a tech oligarch when the Federal Reserve drops trillions of dollars from the sky in a bull market. But in one where fundamentals are returning – this matters. Third, the article says that you’ve already given up control by purchasing Facebook – because Zuckerberg ALWAYS had power (again – a process set before the company even went public. That classic line follows this statement. “But we'd argue that if there ever was a case to cede that control to an executive, it's this one.” Because what could go wrong with giving one individual absolute unchecked power, especially in an environment where investors are de facto forced to finance Zuck’s operations by default? What happens if there are dramatic external events that require advisory? Massive disinformation campaigns? Whistleblower events? What if the CEO gets bored and pivots the entire business model to something well outside the original concept when the company first went public? And no one with any level of influence can offer the council enough skin in the game? The article, of course, compares Zuckerberg to Steve Jobs – Then it says that the company “prints money like nobody’s business.” Care to revisit that statement during an advertising recession? And then… finally – the kill shot. “The upshot: Hang onto your Facebook shares and trust in the wisdom of Facebook's superb management.” That’s what Cramer did. And that’s now why he’s apologizing on camera. I’m avoiding Meta. Enjoy your day, [Garrett signature] Garrett {NAME} [] Market momentum is Green. However, markets are ticking lower Monday after Friday’s monster day in the tech sector. Today’s pullback is not surprising, and investors are starting to focus on the upcoming Federal Reserve meeting as a possible negative catalyst. I remain in just two positions - centered on natural gas and negative moves on 20-year or longer Treasuries. The Federal Reserve continues to sell off assets, and the Bank of England will resume its QT tomorrow. [] [] [] [Garrett Pic] Dear Investor, [The reaction of Jim Cramer]( to Meta Platforms’ earnings report on CNBC this week is getting more attention than the earnings call from Meta last Wednesday. The company’s free cash flow has plunged from $9.5 billion to less than $1 billion in a year. It is burning through money as Mark Zuckerberg tries to own the Metaverse. It’s just silly. Cramer admitted he was wrong about Meta (kudos for apologizing, but he must do the same for calling a market bottom in January AND March 2022). When asked what Cramer got wrong about Meta, he implied that he was misled by company management (“I trusted this management team, that was ill-advised,” he said.) And: “I trusted them and not myself.” Cramer said he was under the impression that “you just can’t spend” a mountain of money like Meta has this year. That was a foolish assumption, given that there may never be another time to obtain and spend “free money” from the government and the Fed, as we’ve seen over the last two years. Cramer said that he thought there needed to be some level of discipline. He said that he expected discipline from the management team. Again… fundamentals were out the window… In the extended clip, Cramer keeps saying that he screwed up. That’s on the heels of saying in June that the stock had “nowhere to go but up.” (Meta stock is off 53% since June 1). But there’s one more thing that Cramer didn’t mention – and perhaps many people don’t consider regarding META’s management. Zuckerberg’s total control of the company. Breaking Down the Voting Shares Mark Zuckerberg has about a 28% economic stake in the company, according to Reuters. But he has more than 57% of the voting shares. He cannot be second-guessed. He cannot be outvoted. He cannot have someone like Ray Dalio at the world’s largest hedge fund (Bridgewater) or the head of CalPERS (California’s pension system) sit him down and explain that burning billions in free cash flow to achieve his Metaverse dream is a terrible idea. So, Jim Cramer’s views don’t matter much comparatively. Zuckerberg is in control – and few people have properly second-guessed the dual-class voting structures because we just had a 13-year bull market fueled by the Fed’s “inflation targeting.” I’ve warned people about this… for six years. It got to the point that people told me that I was just being paranoid… [The “Founder” controlled movement at Facebook became a public story in 2012]( when the company allowed Zuckerberg to keep control before it even went public. It accelerated in 2016 with the share class split. Again, the math: Zuckerberg owns 57% of the voting rights with just a 28% economic stake. So he can do whatever he wants. Here’s the thing: If anyone wants to buy C-class shares with no voting rights in Meta – they can at any time. But there’s another downside to this that people like Cramer don’t consider. The sheer size of Meta and its place on Index funds effectively force pension funds and many other prominent institutions to fund Zuckerberg’s Metaverse fantasy and the company’s reckless spending – all without any say in its strategy or use of free cash flow. All those people who signed up for Wealthfront or Betterment – young investors who pour all their money into passive investment funds –likely own Meta stock through an ETF and may not realize it. During March Madness this year, the Invesco QQQ ETF will be featured in advertisements during every commercial break. It has a massive stake in Meta. Many investors targeting ESG without the headache of active management – likely own Meta stock through ETFs. In fact, 109 ETFs have Facebook Class A stock. Mutual funds own an incredible amount of META stock. The Vanguard Total Stock Market Index alone owns 68 million shares. Across multiple funds, Vanguard has about $23.2 billion exposure to Meta stock. Yet none of these ETFs or mutual fund giants can ever influence the company's direction. Not one bit. They have purchased – whether they wanted to or not – a non-stop ticket to the Mark Zuckerberg show. It's feudalism at its finest. The History of This Movement Chamath Palihapitiya [argued last week]( that the dual-class system originated with Google’s IPO when Morgan Stanley pitched this system to win the “bake-off” against Credit Suisse, which had proposed a Dutch Auction system instead. Once Google secured that dual-class structure, other tech firms could follow. And follow they did. (Great work, bankers. You created an unaccountable oligarchy.) Since 2012, technology entrepreneurs have increasingly demanded this dual structure for their companies. According to a report from the University of Florida, the number of companies with dual-class shares has increased from 15% to 46% over a decade. I covered this trend a few years ago with Snap Inc. – the parent of Snapchat – [and its IPO in May 2017](. As I wrote at the time, the class-share split was simply egregious. These founders want all the benefits of the public markets – without any risk (the risk being that they make stupid decisions and activists and shareholders FORCE changes. It’s a complete banana republic.) Snap stock has fallen as much as 90% from its September 2021 peak, and no one can shake its founders by the shoulders. How Wrong and How Long, Mr. Cramer? It’s fascinating to look back at articles I criticized for lacking concern about concentrated power like this in the public markets. In 2016, as the class structure split emerged for Facebook, TheStreet.com (Mr. Cramer co-founded this site and wrote for it until 2021) argued that investors shouldn’t care about their lack of voting control at Facebook. Where to start with this article… printed on April 29, 2016. [I wish I could make this up.]( Let’s take a look at the argument here, shall we? “First off, it's not like other successful companies haven't done this. Google parent Alphabet, Zillow, and Under Armour have all issued class C shares in the past.” First, the author is correct in those examples. All three of those companies did create dual-class structures. And look at what has happened to those companies since the release of this article. Under Armour’s founder, Kevin Plank, was scandal-ridden and had to step down from the CEO role in 2019. He’s STILL the executive chairman of the company. Shares are now off 65% in the last year, and I wouldn’t buy Under Armour stock with your money. Zillow’s management had that [$6 billion home-buying scheme]( that went sideways. It had to lay off 25% of its employees LAST November. It’s hard to find evidence of accountability in Zillow’s C Suite. Shares are off about 50% this year. [Google has enough scandals]( to fill nine seasons of an Amazon Prime show. And its Google stock still has a way to go. If it breaks under $92, it’s going to $74. It’s off 33% this year. Second, it’s easy to make this lazy excuse around “everyone is doing it” and cheerlead a tech oligarch when the Federal Reserve drops trillions of dollars from the sky in a bull market. But in one where fundamentals are returning – this matters. Third, the article says that you’ve already given up control by purchasing Facebook – because Zuckerberg ALWAYS had power (again – a process set before the company even went public. That classic line follows this statement. “But we'd argue that if there ever was a case to cede that control to an executive, it's this one.” Because what could go wrong with giving one individual absolute unchecked power, especially in an environment where investors are de facto forced to finance Zuck’s operations by default? What happens if there are dramatic external events that require advisory? Massive disinformation campaigns? Whistleblower events? What if the CEO gets bored and pivots the entire business model to something well outside the original concept when the company first went public? And no one with any level of influence can offer the council enough skin in the game? The article, of course, compares Zuckerberg to Steve Jobs – Then it says that the company “prints money like nobody’s business.” Care to revisit that statement during an advertising recession? And then… finally – the kill shot. “The upshot: Hang onto your Facebook shares and trust in the wisdom of Facebook's superb management.” That’s what Cramer did. And that’s now why he’s apologizing on camera. I’m avoiding Meta. Enjoy your day, [Garrett signature] Garrett {NAME} [] Market momentum is Green. However, markets are ticking lower Monday after Friday’s monster day in the tech sector. Today’s pullback is not surprising, and investors are starting to focus on the upcoming Federal Reserve meeting as a possible negative catalyst. I remain in just two positions - centered on natural gas and negative moves on 20-year or longer Treasuries. The Federal Reserve continues to sell off assets, and the Bank of England will resume its QT tomorrow. [] [] [] © 2022 Godesburg Financial Publishing, Inc. DISCLAIMER: COMMUNICATIONS FROM GODESBURG FINANCIAL PUBLISHING (GFP) ARE FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY – NOT INVESTMENT ADVICE: GFP and all the services it offers are for educational and informational purposes only and should NOT be understood to be securities-related offers or solicitations. None of GFP’s communications should be considered or used as personalized investment advice. GFP recommends that you speak with a licensed professional before making any investment decision. RESULTS PRESENTED ARE NOT NECCESSARILY TYPICAL OR VERIFIED: GFP communications may include information regarding the historical trading performance of gurus in their services (all verified by a third party), as well as testimonials of non-employees depicting profitable investments and trades that are believed to be true based on the representations of the persons providing the testimonial of their own free will. Please be aware that the claims regarding investing or trading results of non-employees are not tracked by GFP nor can they be verified. As always, past performance is not necessarily indicative of future results. Therefore, results presented in this email should NOT be considered TYPICAL. Actual results can and will vary based on everything from experience, ability, risk mitigation practices, and market volatility... to the amount of money exposed in the investment or trade. Investing and trading are speculative and carry serious risk. You may lose some, all - or possibly more - than your original investment or trade. GODESBURG FINANCIAL PUBLISHING IS NOT AN INVESTMENT ADVISOR OR REGISTERED BROKER: GFP, including its owners and employees, are NOT registered as securities broker-dealers, brokers, or any sort of registered investment advisors with the U.S. Securities and Exchange Commission, any state securities regulatory authorities, or any self-regulatory organizations. GODESBURG FINANCIAL PUBLISHING EMPLOYEES MAY HOLD SECURITIES DISCUSSED: If a writer holds any securities in a communication, it will be disclosed along with the information on the potential investment or trade. HIR, its owners or employees, have not been - or ever will be - paid by the issuer of a security mentioned in our services or communications. GFP, its owners and employees are paid entirely or in part from commissions based on sales of their services to subscribers. For more information please visit [our disclaimer page here](. [] Sent to: {EMAIL} [UNSUBSCRIBE]( [] © 2022 Godesburg Financial Publishing, Inc. DISCLAIMER: COMMUNICATIONS FROM GODESBURG FINANCIAL PUBLISHING (GFP) ARE FOR EDUCATIONAL AND INFORMATIONAL PURPOSES ONLY – NOT INVESTMENT ADVICE: GFP and all the services it offers are for educational and informational purposes only and should NOT be understood to be securities-related offers or solicitations. None of GFP’s communications should be considered or used as personalized investment advice. GFP recommends that you speak with a licensed professional before making any investment decision. RESULTS PRESENTED ARE NOT NECCESSARILY TYPICAL OR VERIFIED: GFP communications may include information regarding the historical trading performance of gurus in their services (all verified by a third party), as well as testimonials of non-employees depicting profitable investments and trades that are believed to be true based on the representations of the persons providing the testimonial of their own free will. Please be aware that the claims regarding investing or trading results of non-employees are not tracked by GFP nor can they be verified. As always, past performance is not necessarily indicative of future results. Therefore, results presented in this email should NOT be considered TYPICAL. Actual results can and will vary based on everything from experience, ability, risk mitigation practices, and market volatility... to the amount of money exposed in the investment or trade. Investing and trading are speculative and carry serious risk. You may lose some, all - or possibly more - than your original investment or trade. GODESBURG FINANCIAL PUBLISHING IS NOT AN INVESTMENT ADVISOR OR REGISTERED BROKER: GFP, including its owners and employees, are NOT registered as securities broker-dealers, brokers, or any sort of registered investment advisors with the U.S. Securities and Exchange Commission, any state securities regulatory authorities, or any self-regulatory organizations. GODESBURG FINANCIAL PUBLISHING EMPLOYEES MAY HOLD SECURITIES DISCUSSED: If a writer holds any securities in a communication, it will be disclosed along with the information on the potential investment or trade. HIR, its owners or employees, have not been - or ever will be - paid by the issuer of a security mentioned in our services or communications. GFP, its owners and employees are paid entirely or in part from commissions based on sales of their services to subscribers. For more information please visit [our disclaimer page here](. 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