Meta is pushing too hard with the metaverse, says Brad Gerstner. In an open letter to Mark Zuckerberg, the Altimeter Capital chair and CEO suggested slashing investments by over half. He said that Meta lost investors' confidence when it ramped up expenditures.
He also brought up some uncomfortable facts, such as that in the last 18 months, Meta stock has been down 55% compared to an average of 19% for its rivals or that the company's price-to-earnings ratio has dropped by over half from 23x to 12x.
Gerstner, also speaking in the name of other investors, recommends a three-step plan for increasing free cash flows. He suggests reducing headcount expense by at least 20%, annual CAPEX by $5B from the current $30B, and investment in the metaverse to no more than $5B per year. The cutback should be coupled with adopting "more discrete targets and measures of success, as opposed to today's much more ambitious and open-ended strategy."
He reminds that the company announced investments of $10–15B per year for the project, hinting that it may take as long as 10 years to produce results. There has also been a lot of controversy around the lack of transparency. Simply speaking, investors have little clue where their money goes.
Gerstner, who owns nearly 2.5 million shares in Meta, doesn't question the idea of the metaverse. "A company that connects nearly three billion users on phone and text must be investing in the next generation of communication," he writes. Investor suggests that "by any normal company or start-up standard, $5 B per year would seem like an extraordinary amount."