Thursday, April 28, 2022

Meta Platforms' earnings; My Meta presentation; Kara Swisher on Elon Musk; Musk's Twitter takeover should finally kill off DWAC; Videos of mountain gorillas

By Whitney Tilson

1) Meta Platforms (FB), owner of Facebook, Instagram, and WhatsApp, reported first-quarter earnings after the close yesterday (earnings release here and slides here).

At first glance, results were dismal:

  • Revenue grew a mere 7%, the lowest rate since the company went public a decade ago – and guidance for the coming quarter is for revenue to be roughly flat year over year.
  • Total costs and expenses rose 31%, leading to a drop in operating margin from 43% to 31% and a 25% decline in operating income.
  • Share repurchases were $9.4 billion, the third highest in company history, but well below the $15 billion in the third quarter and the $21.6 billion in the fourth quarter.

So why on earth is the stock up a whopping 15% this morning?


You see, stocks don't move based solely on fundamentals. Rather, they move based on a company's results relative to investor expectations.

At yesterday's close of $174.95, FB shares were down a staggering 54% since reaching an all-time high less than eight months ago.

After last quarter's disastrous earnings report, investors crushed the stock and braced for a horrific first quarter.

So when Meta reported a merely weak quarter and guidance yesterday, investors decided – correctly, in my opinion – that things aren't going to get much worse... and hence are piling into the stock today.

2) I predicted that this would happen during my presentation at the Legacy Research Conference on April 1 (I'm pleased to say that my other pick was Twitter (TWTR) – I shared my slides in my April 4 e-mail).

In my April 5 e-mail, I shared my 18-slide presentation on Meta, in which I concluded:

  • Buy Meta Platforms
  • In the 10 years since Meta went public, it's only missed numbers four times. Given the nature of the reset after last quarter's earnings debacle, we are extremely confident that Meta will report strong Q1 numbers on April 28
  • If this happens, given its cheap valuation and the heavy (top-10) weighting in the S&P 500 index, we think there could be a rapid rush back into the stock
  • Hold for the long term... it might be a bumpy ride, but we expect the stock to double or even triple over the next few years

3) I think Kara Swisher is the best commentator/writer on the tech sector, which is why I regularly listen to her two podcasts, Sway and Pivot (the latter with one of my favorite thinkers, NYU professor Scott Galloway).

She knows Tesla (TSLA) CEO Elon Musk well, having interviewed him a dozen times, so I particularly enjoyed her insights on him. Here's her latest Sway podcast episode: "Is Elon Musk About to Be the 'King of Nothing'?" – you can listen to it or read the transcript here. And here's an interview she did about him recently: 'You Can't Pin Him Down' Kara Swisher knows Elon Musk and says judging him by tweets alone is a mistake. Excerpt:

What do you see in him personally that other people don't get from his Twitter feed?

What people don't realize is that he's quite complex and you can't pin him down. Right now, the right wing is embracing him, and the left wing thinks he's some kind of villain. You'd be surprised what he likes and doesn't like, and you never know what it's going to be. He liked some of Trump's policies, for sure. But he doesn't like Trump. I've heard him say not-so-nice things about Donald Trump as a person.

At the same time, he doesn't like Biden, who isn't mentioning Tesla when he talks about electric cars. That's kind of petty, but that's why I think he got mad at him. He's much more reasonable in person. And funny. You just never know where he's going to come down on things, and that's the issue. He's not easily put in a box, and I think these days everybody wants to reduce people into partisan boxes where we can understand them.

One of the reasons for that is Twitter. Twitter has made us all reductive cartoon characters, and this guy is not one. To reduce him down to that is a mistake.

He's obviously a visionary. I prefer dealing with him to others because he gives you genuine answers. He will call you back. He will have a beef with you when others run away because they're cowardly. If he disagrees, he'll be in your face, but at least he's in your face. I'm perfectly fine with that.

In a world where everybody's making a lot of silly stuff, he's not. Cars, rockets, solar, these are important things. He can't be as silly or as fascist as people make him out to be. Maybe he does act like a stupid tech bro sometimes, but maybe he's a little more complex than that? Thomas Edison was not a nice man. Many inventors were very difficult, problematic people – Steve Jobs, for example.

The times we live in are so reductive that it's really hard to be able to get our minds around a truly complex human being. And that's what he is.

I also thought she made some good points about moderation on Twitter and other platforms:

Do you think there's legitimacy to the concern that he's going to take us back ten years in terms of moderation?

Moderation is not working right now. I don't know where he'd take us back to. I think those people don't know what they're talking about. I think Twitter's done a terrible job. They've tried. It's not even like it's not working; maybe it can't be worked. That's the problem.

Are these systems architected incorrectly? Should there be a million Twitters where everybody gets to have various degrees of moderation?

There's also a business issue. Again, these are not public squares; these are private companies. I'm not sure that it's the government's role to solve these problems. The concentration of power among the very rich is really problematic, but guess who's supposed to do something about that?

The government. If Elizabeth Warren wants Elon Musk to pay more taxes, change the tax laws. He's following the rules. Same thing with Facebook and the rest of them. If you don't like that they're stealing data or grabbing everyone's data or leaving us unprotected, then pass some f*cking laws that protect us, just like we do around water, cigarettes, or opiates. There's been no laws governing the Internet since it was created. Come on!

4) Speaking of Twitter, Elon Musk's acquisition and likely reinstatement of former President Donald Trump onto the platform is likely to be the final nail in the coffin of the laughingstock that is Twitter knockoff Truth Social – and the SPAC that has a merger agreement with it, Digital World Acquisition (DWAC).

My colleague Enrique Abeyta and my friends at Kerrisdale Capital agree: Elon Musk's $44 billion Twitter takeover should finally kill off the SPAC looking to merge with Donald Trump's Truth Social, according to investing experts. Excerpt:

Experts told Insider Musk's acquisition of Twitter could cause DWAC shares to crash back down to $10.

"DWAC is dead in the water at this point," Enrique Abeyta, an executive at the famed investor Whitney Tilson's Empire Financial Research, said. "I'm not trying to make a political point there, I'm just stating a fact."

"Musk's acquisition of Twitter is a mild negative, but there were so many negatives already that you can't really even describe it as a game-changer," he added.

Many investors had already questioned DWAC's credentials during its initial rally.

"Typically, when a SPAC launches, it's the most important event in the SPAC's lifetime: You file a lot of documents so that people can actually evaluate the company," the research firm SPACInsider's chief executive Kristi Marvin said in October. "The problem with this deal is that there's no information on the company, we just have the bare minimum."

Musk's takeover of Twitter could also jeopardize DWAC's acquisition of Truth Social, analysts said. A SPAC must return all of its cash to investors if it fails to identify a target company within two years of its IPO.

"Trump barely even publicized Truth Social's launch," Abeyta said. "If Musk allows him back on Twitter, he'll go back to Twitter – which is clearly not a positive for DWAC."

Kerrisdale Capital released a short report targeting DWAC last week, causing the blank-check company to fall 9%.

"With each passing day, the truth becomes harder to deny; a merger between two sketchy companies that is already taking too long is likely headed for collapse," Kerrisdale strategists said. "We value DWAC at the cash held in trust: $10."

5) In my April 18 e-mail, I wrote about my family's recent trip to Rwanda, the highlight of which was hiking into the jungle to see the endangered mountain gorillas. In the e-mail, I shared eight pictures, but neglected to include links to these two videos of various clips I took:


Best regards,


P.S. I welcome your feedback at [email protected].