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Instant Reaction: Meta's Outlook Spooks Investors · Bloomberg Intelligence

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  Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
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  Speaker 2: We're watching shares of matap platforms down ten percent after
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  Speaker 2: the company reported revenue that came in above estimates thirty
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  Speaker 2: six point four to six billion versus estimates of thirty
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  Speaker 2: six point one two billion. The concern, it looks like Carol,
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  Speaker 2: that investors have is all about that guidance. Second quarter
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  Speaker 2: revenue expected to come between thirty six point five and
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  Speaker 2: thirty nine billion, whereas estimates were for thirty eight point
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  Speaker 2: two four billion dollars. This is essentially the second quarter
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  Speaker 2: sales forecast lagging at least at the midpoint. But we're
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  Speaker 2: seeing a kind of an outsize reaction in the after hours.
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  Speaker 1: Yeah, it's kind of interesting. We're going to need some
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  Speaker 1: you know, kind of color around these numbers and also
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  Speaker 1: this you know, increase in expenses potentially and spending. Let's
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  Speaker 1: get to it with our Bloomberg News contributor John Erlickman,
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  Speaker 1: who follows the tech sector and has for a long time.
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  Speaker 1: John joining us from Toronto. John, the stock is sinking
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  Speaker 1: in the aftermarket. I mean, it's had quite a run
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  Speaker 1: here in twenty twenty four. But again, shares of Meta
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  Speaker 1: down about ten percent, what jumps out for you and
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  Speaker 1: why do you think maybe investors are so disappointed? Is
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  Speaker 1: it all about that outlook?
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  Speaker 3: I think Carol, at the end of the day, you
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  Speaker 3: and Tim have outlined all the considerations that are playing
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  Speaker 3: into the stock decline. Let's certainly wait for some details
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  Speaker 3: on the conference call later on how the AI roadmap
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  Speaker 3: is playing out. But I think the context here is
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  Speaker 3: very important. So you were talking about the run up
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  Speaker 3: in the stock last year and the continued rally this year.
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  Speaker 3: It's easily outpacing all the digital ad players because not
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  Speaker 3: only did they prove to Wall Street that they can
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  Speaker 3: deliver we saw that in the previous quarter, but also
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  Speaker 3: that they have been seen as one of the earliest
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  Speaker 3: big winners in big tech around AI. You could argue
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  Speaker 3: it's Microsoft and Meta that have shown the strongest ability
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  Speaker 3: to implement implement generative AI, work it into the system.
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  Speaker 3: So Tim was first to talk about the revenue number
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  Speaker 3: for the current quarter possibly ending up being a little
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  Speaker 3: light versus expectations, although in theory, based on the guidance
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  Speaker 3: they're giving us, it could be a little bit stronger.
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  Speaker 3: You highlighted the expenses. I think the fact that they
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  Speaker 3: are communicating around those expenses being impacted by their AI push.
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  Speaker 3: That's going to have to be a decision that investors make,
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  Speaker 3: because when this stock lost basically two thirds of its
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  Speaker 3: value in twenty twenty two, people were concerned about spending
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  Speaker 3: on the metaverse with an unclear roadmap. Most of Wall
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  Speaker 3: Street these days thinks that it is worthwhile to spend
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  Speaker 3: on AI, and heck, they know how much those Nvidia
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  Speaker 3: GPUs cost, so there seems to be a willingness to
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  Speaker 3: spend if it will mean bigger returns. You did see
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  Speaker 3: the revenue number for the current quarter pretty strong. This
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  Speaker 3: is the strongest growth we've seen from them in three
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  Speaker 3: years time. So I think we're going to have to
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  Speaker 3: let the math fall. The simplest part of this story
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  Speaker 3: is that expectations were high. The stock had rallied a lot,
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  Speaker 3: completely different story than Tesla yesterday. And let's see if
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  Speaker 3: they give us more details on the AI.
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  Speaker 4: Yeah.
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  Speaker 2: I think you bring up a really good point about
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  Speaker 2: the stock being up close to forty percent so far
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  Speaker 2: this year, expectations being high, just with the run up
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  Speaker 2: that we had last year too. I do want to
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  Speaker 2: bring in also, Man Deep saying Bloomberg Intelligence senior tech
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  Speaker 2: industry analysts whose just now looking at the numbers as well.
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  Speaker 2: Man deep the stock down about nine point six percent
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  Speaker 2: right now. You set up the call in the print
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  Speaker 2: in a great way for us earlier on the program.
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  Speaker 2: Your reaction to the numbers.
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  Speaker 4: The focus is more on the spending and the guide
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  Speaker 4: and the fact that they raised the capex guide by
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  Speaker 4: more than ten percent. I mean, investors are very fearful.
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  Speaker 4: Whenever this company talks about spending more, I think the
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  Speaker 4: alarm bells started ringing.
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  Speaker 2: I heard that somewhere you got to spend money to
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  Speaker 2: make money.
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  Speaker 4: Well, so I think in their case, the fact that
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  Speaker 4: they go so big and you know, in the past
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  Speaker 4: they haven't cared about what investors think, and it can
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  Speaker 4: be kind of a difficult scenario for people to imagine
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  Speaker 4: if the growth were to slow down and they're talking
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  Speaker 4: about raising capex, raising op x. Is it twenty twenty
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  Speaker 4: two all over again? And that seems to be the react.
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  Speaker 1: AD impressions up twenty percent in the quarter compared with
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  Speaker 1: the same period last year. The average price the platform
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  Speaker 1: is able to charge per AD is also up six
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  Speaker 1: percent or Alex Barinka weighing in on this, you know
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  Speaker 1: this gets to the point with what we talked about earlier,
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  Speaker 1: Like I get it. Everybody is excited about AI. You
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  Speaker 1: seem to say that in terms of ad targeting, it
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  Speaker 1: makes sense in terms of what they're doing. So for
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  Speaker 1: you who understands this company like no other, like the
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  Speaker 1: spend makes sense or again it's mandeep a little bit
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  Speaker 1: of a balance here.
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  Speaker 4: If they had said, Okay, if we are raising our
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  Speaker 4: capex and we expect to monetize Lama three, our latest model,
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  Speaker 4: in this way, then I think it would have been
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  Speaker 4: a lot more palatable. Right now, the guidance is more
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  Speaker 4: about we are raising our capex, we are raising our opics,
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  Speaker 4: and there isn't anything. Maybe we learned that on the call.
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  Speaker 1: What's the question you would ask.
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  Speaker 4: How do you plan to monetize generative AI beyond the
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  Speaker 4: ad targeting? Everyone can see the proof in the ad
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  Speaker 4: pricing numbers and this quarter was great, but how do
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  Speaker 4: you go beyond monetizing Jenny I separately, because Meta does
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  Speaker 4: have an engagement problem. As I was alluding to before,
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  Speaker 4: The blue app is losing engagement, so you somehow need
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  Speaker 4: to offset that somewhere else beyond the TikTok band hope
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  Speaker 4: that everyone thinks he is going to benefit that.
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  Speaker 2: John Relick, when I see you nodding here when Mandeep
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  Speaker 2: is talking about Meta's engagement problem, I mean, I don't
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  Speaker 2: know about you, but at least when it comes to
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  Speaker 2: the reels function, the TikTok clone in Instagram, I mean,
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  Speaker 2: sometimes I sit down with that thing and you know,
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  Speaker 2: suddenly I look up in twenty minutes have passed and
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  Speaker 2: I'm like, how did I just waste twenty minutes of
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  Speaker 2: my life with this?
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  Speaker 3: That happens to pull yourself out. Pull yourself out, Tim
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  Speaker 3: if you can't look. Mandeep has done some of the
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  Speaker 3: best work on implementing AI so far, and I think,
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  Speaker 3: actually we'll have a better conversation once Alphabet reports its results,
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  Speaker 3: because it was Mandy who said to me, if they
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  Speaker 3: can prove that their search business is not being impacted
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  Speaker 3: by all this talk about, you know, chat bots that
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  Speaker 3: courage people to spend more time on the Facebook platforms,
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  Speaker 3: on the Meta platforms, well, then maybe Meta will feel
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  Speaker 3: that they have to appease Wall Street in a bigger way.
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  Speaker 3: You were talking earlier about Mark Zuckerberg and the T
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  Speaker 3: shirt in the necklace. I was just thinking back to
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  Speaker 3: Mark Zuckerberg, you know, giving the suit and tie approach
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  Speaker 3: to Wall Street when the last quarter it was all
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  Speaker 3: about cost controls, issuing a dividend, focusing on stock buybacks.
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  Speaker 3: Historically that has not been the Mark Zuckerberg. We know
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  Speaker 3: this is. I mean, it's remarkable that these are even
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  Speaker 3: public companies sometimes when you think about how hungry all
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  Speaker 3: these tech entrepreneurs are to get the right the next
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  Speaker 3: story right. So I think that yes, I would agree
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  Speaker 3: with man Deep, let us know more on the profit
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  Speaker 3: and lost story around your AI initiatives. But I think
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  Speaker 3: for Mark Zuckerberg, when the table stakes seems so high
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  Speaker 3: to all these players in Silicon Valley right now, he's
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  Speaker 3: probably made a new chess move to say we won
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  Speaker 3: over Wall Street. Now we got to win the battle
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  Speaker 3: on the AI front.
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  Speaker 4: And I would just have one more thing. If they
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  Speaker 4: really wanted to fund the GENI initiatives, they could have
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  Speaker 4: said we are curtailing a reality lab spend. In the print,
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  Speaker 4: it's very obvious he wants to keep spending on reality labs.
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  Speaker 4: There is no pullback on that front.
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  Speaker 1: So the CFO, Susan, why is it I forget right? Susan,
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  Speaker 1: whne am I saying it correctly in the statement talking
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  Speaker 1: about the metaverse business reality labs. For reality labs, we
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  Speaker 1: continue to expect operating losses to increase meaningfully year over
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  Speaker 1: year due to our ongoing product development efforts and our
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  Speaker 1: investments to further scale our ecosystem. So Mandy, they're not
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  Speaker 1: scaling back.
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  Speaker 4: They're not and they want to increase spending on AI,
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  Speaker 4: which I think investors wouldn't mind given the state of
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  Speaker 4: generative AI. But you have to see that discipline that
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  Speaker 4: they have shown in the last eighteen months continue Why
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  Speaker 4: go back to that twenty twenty two phase where you know, everyone.
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  Speaker 1: Question we learned how well that worked?
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  Speaker 4: Right? Well?
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  Speaker 2: John, I mean there's a difference between investing in AI
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  Speaker 2: for ad tech and investing in AI for engagement on
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  Speaker 2: the traditional family of platforms, that family of apps. And
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  Speaker 2: there's a difference in spending billions of dollars. And I
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  Speaker 2: think many investors over the last couple of years would
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  Speaker 2: argue blowing billions of dollars on headsets and trying to
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  Speaker 2: create a new type of computing platform.
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  Speaker 3: Very true, very true. But I would say that if
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  Speaker 3: Mark Zuckerberg has already been very willing to make comments
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  Speaker 3: on Apple's VR and AR initiatives, and Apple is now
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  Speaker 3: a story where we're looking for more details on their
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  Speaker 3: AI strategy. We just don't know where we're going. We
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  Speaker 3: don't know what form factor will be the dominant one
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  Speaker 3: in a decade. We don't know exactly what AI strategy
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  Speaker 3: will be the most successful one. And I think to
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  Speaker 3: the Reality Labs reality it's that if you don't know,
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  Speaker 3: and you have the capital that you can commit to
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  Speaker 3: these things, and you're willing to take, you know, a
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  Speaker 3: slap on the wrist from from Wall Street so that
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  Speaker 3: you can keep going down both of these paths, because
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  Speaker 3: arguably Apple is as well making fresh hardware bets and
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  Speaker 3: AI bets. I think it just speaks to the fact
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  Speaker 3: this is a very exciting time after a lot of
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  Speaker 3: predictability in Silicon Valley for the last decade.
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  Speaker 1: What's interesting is and we're continuing to see Meta down
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  Speaker 1: about ten percent eleven percent in the after hours. Pinterest
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  Speaker 1: is also down about six percent in the after hours.
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  Speaker 1: We're watching some a two undred fifty billion dollar dollar
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  Speaker 1: exchange traded funny TAF tracking. The NAIs doc got hit
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  Speaker 1: in late hours following Meta too so we're seeing it
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  Speaker 1: kind of dragged down the sector MENTEP. If Meta was
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  Speaker 1: not up almost forty percent this year, would would maybe
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  Speaker 1: Wall Street be a little bit more patient.
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  Speaker 4: I think so, And to an extent, you know, it
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  Speaker 4: is tied to the fact that stock had done really well.
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  Speaker 4: But at the same time, I think if they are
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  Speaker 4: not in raised the capex and the opics view and
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  Speaker 4: probably not said that they will keep spending on reality laps,
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  Speaker 4: you wouldn't have seen such a reaction that this is
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  Speaker 4: more about investors really panicking around Meta, going back to
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  Speaker 4: you know, they're.
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  Speaker 2: Always MINDI is the panic warranted.
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  Speaker 4: Look, I think with the kind of churn you have
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  Speaker 4: seen with Meta shareholder base. I mean, remember when they
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  Speaker 4: had the eighty percent draw down, a lot of the
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  Speaker 4: lot people shareholders just left, They gave up.
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  Speaker 2: And I thought this was a twenty year turnaround story.
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  Speaker 4: And now they have new shareholders, which who may not
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  Speaker 4: have that kind of patience, you know, in terms of
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  Speaker 4: that long term strategy. So you want to be very
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  Speaker 4: careful in terms of setting expectations. I think last quarter
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  Speaker 4: they did the right thing by announcing a buyback, by
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  Speaker 4: announcing a dividend. Yeah, and they haven't really talked about
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  Speaker 4: capital allocation much in this release, which is what investors
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  Speaker 4: wanted to say.
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  Speaker 1: That's a really good point. The other thing I want
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  Speaker 1: to say, and John, let's bring you back into this.
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  Speaker 1: Looking at our live blog, Alex Barinka noting that the
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  Speaker 1: total number of people using Meta's apps, so we're talking Facebook, Instagram, Whatsappen, threads,
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  Speaker 1: rising seven percent year overy year to three point twenty
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  Speaker 1: four billion. I mean, again, when we think about social media,
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  Speaker 1: these guys really kind of just.
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  Speaker 2: There's Meta and there's everyone else exactly.
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  Speaker 1: And so as you know, men Deep was talking earlier like,
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  Speaker 1: if you're going to do an ad spend, this is
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  Speaker 1: kind of probably where you're going to go because this
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  Speaker 1: is where you get the payoff. But I mean there's
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  Speaker 1: value in that. I mean just putting aside the AD
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  Speaker 1: spend and stuff that the AdSpend, the marketing spend, the
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  Speaker 1: CAPEC spend, if you will, I mean that is incredible.
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  Speaker 3: Yeah, and I think we have had to relearn how
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  Speaker 3: to evaluate these companies. Meta doesn't get as specific with
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  Speaker 3: individual platform numbers as they used to. Apple doesn't tell
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  Speaker 3: us about the number of iPhones they're selling quarter to quarter.
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  Speaker 3: Netflix just told us they're not going to tell us
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  Speaker 3: how many subscribers they have in the future, right, which
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  Speaker 3: means we're talking now about the power of the platform,
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  Speaker 3: and you are appssolutely right, Carol. The advertising ecosystem around
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  Speaker 3: the meta properties is extremely robust, and they have proven
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  Speaker 3: to us that that is hard to break. I do
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  Speaker 3: have to go back to what Tim said, though, I'm
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  Speaker 3: still always curious about where the trends are taking us.
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  Speaker 3: It's been a busy day on the TikTok front as well.
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  Speaker 3: Without a doubt, if you're Mark Zuckerberg, you are concerned
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  Speaker 3: about the levels of engagement just in the pure traditional
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  Speaker 3: social media way of having the hot hand and Instagram
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  Speaker 3: is getting a bit older. Facebook certainly is already there,
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  Speaker 3: but breaking that model that they've built is hard to do.
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  Speaker 3: And maybe that's, you know, if you've got some competition
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  Speaker 3: on other social media platforms. Maybe that explains to what
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  Speaker 3: Mandy was talking about earlier, why you need to continue
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  Speaker 3: to put all that money into the metaverse in reality
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  Speaker 3: labs part while you're also spending on AI to make
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  Speaker 3: a more robust platform for your traditional social media channels.
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  Speaker 2: Aman Deef, I want to give you the last word
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  Speaker 2: here as you go and get ready to write your reports.
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  Speaker 1: The headline on that report.
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  Speaker 2: Reports reports plural later today. I know it's going to
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  Speaker 2: be a late night for you. What are you thinking.
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  Speaker 4: Cost discipline going away from meta question mark because you know,
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  Speaker 4: to me, there's no doubt this company has a scale
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  Speaker 4: and it's a juggernaut when it comes to digital ads.
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  Speaker 4: It's just kind of setting the right expectations and sticking
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  Speaker 4: to that. And we know Mark Zuckerberg can change and
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  Speaker 4: he can execute like no one else. It's a very
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  Speaker 4: nimble product team. But when it comes to managing investory expectations,
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  Speaker 4: it's a different ballgame. And they've shown they can be
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  Speaker 4: loosed when it comes to the capital allocation side.
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  Speaker 1: Gosh, I'm just telling you. You're on the live blog.
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  Speaker 4: Right, Yeah? Did you do that?
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  Speaker 2: That's amazing. It sounds like they're taken from our conversation
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  Speaker 2: for the live blog. Everyone check out the live blog.
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  Speaker 1: Sounds like Zuckerberg needs to put a suit back on
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  Speaker 1: and take off the rancher coat and silver.
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  Speaker 2: I mean it's maybe well. Shares down now, Shares down
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  Speaker 2: now twelve points seventy percent and up in going into
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  Speaker 2: the print close to forty percent.
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  Speaker 1: Yeah, so pretty much at its lows. Guys, thank you
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  Speaker 1: so much, Ben Deep saying we always appreciate it, senior
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  Speaker 1: tech industrial analysts at Bloomberg Intelligence, and our thanks to
• 14:15
  Speaker 1: John Erlichman as well. Always great in terms of his
• 14:18
  Speaker 1: insights on this group. He's been following it for a
• 14:20
  Speaker 1: long time. Bloomberg News contributor out There in Toronto shares
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  Speaker 1: a Meta down almost thirteen percent.