(Bloomberg) – Mark Zuckerberg made Meta Platforms Inc. one of the biggest companies in the world, but some investors now see him as an obstacle to the stock rallying after a historic sell-off.
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Facebook’s parent company has fallen 72% this year, with earnings last week pushing shares to their lowest level since 2016. The biggest drag on the stock: Meta is spending billions of dollars to grow the Metaverse, an immersive virtual world that the CEO has long believed to represent the future of computing.
Shares fell 4.4% on Monday, participating in a broad decline in tech and internet stocks. The Nasdaq 100 index fell 1.5%.
The strategy is dampening earnings even though the company acknowledges that it is unlikely to generate significant revenue for years. While investors may be yearning for Meta to once again focus on selling ads to its billions of social media users, the corporate structure gives Zuckerberg complete control, so they can’t do much more than what they have already done: sell.
“He’s deaf to what the owners of the company want, outside of himself,” said David Katz, chief investment officer at Matrix Asset Advisors. “The stock could double in a year with better management, with more shareholder-centric management.”
Despite these issues, Katz views the stock as “very cheap” and said that “longer term, if you’re willing to hold your nose, I think there’s a good chance Meta will be significantly more higher than it is today.”
Zuckerberg owns or controls about 90% of the company’s unlisted Class B shares, which have 10 votes each to one vote each for Class A shares that are publicly traded.
The structure prevents activists from influencing the board and management, which has happened with big tech in the past. In 2014, Carl Icahn pushed Apple Inc. to accelerate its buyout program in order to boost the stock price.
Asked about Zuckerberg’s control, a spokesperson for Meta referred to the company’s proxy statement, which reads: “We believe that our capital structure is in the best interest of our shareholders and that our current corporate governance structure is sound and effective.”
Under Zuckerberg, the statement added, “we have established a track record of creating value for our shareholders and navigating significant opportunities and challenges.” The company’s investments in improving privacy and security “may not have been possible had our Board and CEO focused on short-term success rather than the long-term interests of our community and our company”.
In the S&P 500, 33 companies have unequal voting rights similar to those of Meta, according to ISS Corporate Solutions, including Google parent company Alphabet Inc., Paramount Global and Comcast Corp.
Zuckerberg’s involvement means he has been particularly hard hit by the title slump. In the past 13 months, his total loss of wealth has exceeded $100 billion. His apparent willingness to endure such losses is a sign of his faith in the metaverse, and if the bet comes true, investors may one day look back with relief that Zuckerberg was not forced to change course.
Zuckerberg deserves the benefit of the doubt, said Mark Iong, fund manager at Homestead Advisers.
“He took Facebook public when he had huge margins, so he clearly cares about making money. He’s waited years to monetize WhatsApp, so he’s clearly patient. And he bought Instagram early, so he’s clearly smart,” he said. “I think he’s earned the right to pursue that long-term strategy.”
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Meta shares fell 24% last week, the biggest one-week drop ever for the company, which went public a decade ago. The collapse even surpassed a 21% crash in the first week of February, when another disastrous earnings report vaporized $251.3 billion in market value in a single session. Due to the stock’s already significant decline this year, last week’s decline resulted in an $86.4 billion loss in market value.
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–With the help of Subrat Patnaik.
(Updates trade to reflect session low.)
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