NEW YORK, Dec 21, 10:52 Pm (Reuters Breakingviews) – Meta Platforms (META.O) is the tale of two companies, tied together only by their potential to sell advertising and their owner Mark Zuckerberg. As big marketers tighten pocketbooks in 2023, the social media firm, which operates Facebook and Instagram, will become less of a cash machine. This will encourage its founder and chief to pluck his pet project, the metaverse, away from the rest of the business.
Meta is expected to ink some $15 billion in free cash flow in 2022, according to estimates from Refinitiv, a 60% decline from 2021, in large part because of spending on the virtual universe. But cash flow from Meta’s operations alone – mostly the business without spending on the metaverse – would represent a yield of 15%. That’s three times the free cash flow yield of consumer giant Procter & Gamble (PG.N), and more than oil major Exxon Mobil (XOM.N), which had a banner 2022.
Rather than make Meta shareholders collectively pay for Zuckerberg’s ambitions, he could fund them himself through dividends from the parent company. If all the cash flow from operations went back to shareholders, representing about $18 a share, Zuckerberg would find himself with some $6 billion to reinvest in the project based on his stake. That’s not enough given current spending plans, but a few key investors who sign on to his vision might be keen to invest alongside him.
Zuckerberg might, for now, be more comfortable spending investors’ money. And with a 57% voting stake, any shareholder will struggle to force him to do otherwise. Still, there’s a financial case for him to refocus his efforts. Facebook and Instagram are under the regulatory microscope – and that is starting to hurt the metaverse, too. In December, a high-profile trial between the U.S. Federal Trade Commission and Meta kicked off over the company’s deal to buy virtual reality app developer Within. If Meta were smaller, or the metaverse were a separate company, it might not attract the same attention.
Plus, the social media business needs intense focus as spending starts to slow. Zuckerberg – who has never been an operator of a public company through an economic downturn – might not be the best person to lead during a slump. He may loathe to hand over the reins without a distraction. Splitting Meta and taking the ‘verse could be a good plan.