Back in the prehistoric era — in 2012, when Facebook staged one of the most hyped initial public stock offerings of all time — I warned the company’s newly minted shareholders that they had become wedded to Mark Zuckerberg.
Then 28, the company founder became one of the most deeply entrenched chief executives in American business. Facebook’s two-class stock structure allowed Zuckerberg to control 57% of all shareholder votes despite owning only about 28% of all its shares.
“You better hope he does everything right,” I wrote, “because if he doesn’t, he’ll be harder to get rid of than tuberculosis.”
According to the company’s latest proxy statement, that’s still the case. Zuckerberg owns less than 1% of Meta’s publicly traded Class A stock, which carries the right to one vote per share, but 84.7% of its Class B shares, which give its owners 10 votes per share.
His total voting power: 54.4%. In other words, he’s the emperor of Meta-land.
Investors don’t normally clamor for stakes in companies with entrenched management because they like the two-class structure in principle.
They do it because they’ve bought into the story that the entrenched founder or CEO is some kind of genius, or they figure that the company is wired into a growth trend so powerful that not even an entrenched idiot could screw it up so fast that they wouldn’t be able to sell off their stake in time, at a profit.
For many years, the financial trajectory of Facebook, now known as Meta Platforms, validated investors’ faith in Zuckerberg. He seemed to have the golden touch.
The company’s earnings per share soared from about 9 cents just before its IPO to $3.87 at the end of 2020. Its market capitalization rose from about $56 billion at the time of its IPO to more than $1 trillion in the third quarter of 2021.
Not so much lately. The stock reached its all-time high closing price, $382.18 on Sept. 7, 2021, a few weeks before Zuckerberg announced he was renaming Facebook as Meta Platforms, signifying a vague redirection of the company into virtual space that Zuckerberg himself couldn’t describe intelligibly.
“There’s a lot of ambiguity around what the metaverse means,” Zuckerberg acknowledged on Ben Thompson’s “Stratechery” podcast at that time.
But his specific ideas seemed less than compelling. “You’re going to be able to have a message thread going on when you’re in the middle of a meeting or doing something else and no one else is even going to notice,” he posited.
The shares staggered lower over the following months, culminating in a record one-day immolation of market value of $251 billion on Feb. 3, when the company announced disappointing results for the fourth quarter of 2021. The plunge was a record not merely for Meta, but in stock market history.
The stock took another header after Meta reported third-quarter earnings on Oct. 26 — a 4% decline in earnings and 52% decline in profit for the quarter compared with the same period a year earlier. The stock took a hit of nearly 25% the next day.
As of midday Wednesday, Meta shares were trading on Nasdaq at less than $91. That’s a haircut of more than 75% from its 2021 peak, and a loss so far this year of about 71%.
Meta is now trading about where it was in October 2015. For investors who stayed in the stock, seven years is a long period of dead money. (The stock doesn’t pay a dividend.)
As has been the case for the last year, the problem seems to be Zuckerberg’s inability to articulate where he’s leading his company as it undergoes transitions on multiple fronts.
These include competition from alternative social media platforms such as TikTok and a decline in advertising revenues due to Apple’s tightening the anti-tracking technology on its devices, which interferes with targeted advertising.
Bigger questions, however, arise from Zuckerberg’s pivoting of the company toward what he calls the metaverse, which has something to do with virtual reality and other immersive versions of the internet.
Some investment analysts on Meta’s earnings conference call Oct. 26 plainly didn’t know what to make of this pivot. That was especially so since Meta executives warned that the company’s spending on the new world will grow sharply in coming years, before the changes yield higher profits.
“Summing up how investors are feeling right now,” Brent Thill of Jefferies asked Zuckerberg, “is that there are just too many experimental bets versus proven bets…. Everyone would love to hear why you think this pays off.”
Zuckerberg answered, “A lot of the things that we’re working on … are — we’re quite confident that they’re going to work and be good.” He added, “Obviously, the metaverse work is a longer-term set of efforts that we’re working on. But I don’t know. I think that that is going to end up working, too.”
This flailing around points to the limits of the Great Man concept of corporate leadership. It’s akin to the theory that the best form of government is benevolent despotism, which emerged during the Enlightenment of the 18th century.
The idea then was to put one’s trust in an enlightened despot who could see the way clear to providing the greatest happiness for the greatest number and had the unchallenged power to turn intentions into action.
The flaw in the argument, obviously, was what might happen if the benevolent despot turned out to be not so benevolent or enlightened. That’s the question that emerges from not only Meta but other technology companies with leaders impervious to removal or even collaborative decision-making.
A looming case is that of Twitter, whose new owner, Elon Musk, promptly made himself the invincible man in charge by firing the platform’s top management and board and reportedly tying the hands of its content moderating staff almost immediately upon taking over on Oct. 28.
Even before then, Musk’s habit of striking back at his faultfinders online didn’t adorn him with the air of someone you could approach with anything implying criticism.
For many users, including myself, the Twitter experience has changed noticeably for the worse since then.
For all that Musk railed about the proportion of “bots” and fake accounts on Twitter during the months in which he was trying to extricate himself from the $44-billion deal, my Twitter feed has been inundated with obviously fake accounts.
For all that he has promised advertisers that he won’t allow the platform to become a “hellscape” of racist, antisemitic and other hate speech, noxious tweets haveproliferated, according to researchers.
Musk seems to be making Twitter policy on the fly. He reportedly contemplated charging users about $20 a month to retain the blue checkmarks designating them as “verified” users, a sort of certification that they are who they say they are (I’m one), as a way to monetize users and supplement advertising revenue. Then he announced (on Twitter) that the fee would be $8 a month, though that would cover not only verification but other mostly unspecified privileges or services.
Be that as it may, the general opinion of users seems to be that the blue mark is of such nebulous value that its proper price is closer to $0. Twitter will reportedly begin selling blue checks as soon as Monday.
Even if every one of the estimated 400,000 verified users paid $8 monthly to keep their putative status, that would only produce about $38 million a year, not a patch on the estimated $1 billion in annual interest expense the company has incurred because of Musk’s takeover, or the losses the company has recorded in recent years, which came to $272 million last year.
It’s possible, one supposes, that opening a pay window for anyone seeking verification might expand the market, but it might also devalue the checkmark by making it impossible to distinguish those who are really verified from those who merely paid for the badge.
If Musk’s policies continue to provoke a hemorrhaging of users, as seems to have happened just in the last week, things will only look worse for his $44-billion plaything.
That brings us back to Meta.
The company’s corporate personality has always been inextricable from Zuckerberg. But he hasn’t always been a firm hand at the tiller. Among other things, the company has taken fire from regulators and users for its crummy privacy protections. In July 2019, the Federal Trade Commission hit it with a $5-billion penalty for “deceiving users about their ability to control the privacy of their personal information.”
That was the largest FTC penalty ever for a privacy violation, and reflected the fact that the practices of then-Facebook violated an agreement the company had reached with the FTC on privacy issues in 2011.
Facebook was then so big, however, that Zuckerberg and his investors could afford to shrug off the penalty. After all, $5 billion was what Facebook collected in revenue in an average month.
That would still be the case now, as it happens. Meta recorded revenue of $118 billion last year, or almost twice as much per month as that 2019 penalty, and its monthly profit has been almost 70% higher in the first nine months of this year than it was in the same period of 2019.
Other Zuckerberg pivots have faded away or blown up. In 2016, the company announced that it would be pivoting to video as its primary medium. “The best way to tell stories in this world, where so much information is coming at us, actually is video,” a Facebook executive said. “It conveys so much more information in a much quicker period. So actually the trend helps us to digest much more information.”
This was, of course, exactly wrong: The best and most efficient way of absorbing information was, and is, via print, not video. Facebook was eventually accused of defrauding advertisers by feeding them fake estimates of the viewership of video ads in 2016 and 2017, and paid a $40-million settlement.
In the aftermath of Meta’s dismal results in February, Zuckerberg again proposed a pivot to video, which looked like a sign that he was running out of ideas for the company.
Zuckerberg sometimes displays what might be described as a “whim of iron,” a common malady among kings, princes, admirals and other individuals accustomed to issuing orders and having them obeyed without backtalk. Among other ventures, the company’s idea of creating a cryptocurrency named Libra in 2019 was scrapped earlier this year.
Meta currently faces daunting head winds. Those include a reinvigorated Federal Trade Commission, which earlier this year won permission to pursue an antitrust lawsuit against the company from a federal judge, who found the FTC’s allegations “robust and detailed” and rejected the company’s attack on FTC Chair Lina Khan.
Another difficulty is public doubt about its social impact. It’s blamed for undermining the health and self-image of teen girls through its Instagram photo-sharing app, as whistleblower Frances Haugen told a congressional committee last year. Its role in spreading political disinformation was documented in the wake of the 2016 presidential election.
None of this means that Meta’s fortunes might not turn around again. It’s still a powerful social and financial force reaching 3.7 billion users monthly. Its $118 billion in 2021 revenue and $39.4 billion in profits last year place it in the highest echelon of American corporations, ranked 27th by revenue among the Fortune 500.
The question is where Meta would be if Mark Zuckerberg had to answer to shareholders, or a board with the power to hire and fire a CEO, or anybody. Meta would undoubtedly be a different company, and maybe, just maybe, a better one.
