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Welcome to Facebook’s Metaverse

By:

Chief Strategist at Interactive Brokers

When a company that is utilized by a significant percentage of the world’s population makes a key announcement, people pay attention.  In that light, it makes sense that Facebook’s name change to Meta would be a key topic of discussion in both financial and general media. 

To be candid, my first reaction to the name change was “they’re putting lipstick on a pig.”  Facebook is a damaged brand.  Perhaps the best rationale inadvertently came from the NBA star Ron Artest in 2011, shortly after he changed his name to Metta World Peace in the aftermath of an ugly basketball incident:

“I changed my name because I got tired of Ron Artest, he’s a [expletive],” World Peace said. “And when fans get mad at me, they can’t say, ‘I hate World Peace.'” Metta is a Buddhist term meaning “loving kindness”

While I clearly have no insight into whether the company formerly known as Facebook took any direct inspiration from the hoopster now known as Metta Ford-Artest, the branding decision comes from the same place.  Facebook (FB) has been the source of angry rhetoric amongst many of its users, and importantly amongst lawmakers on Capitol Hill.  In an era when members of opposing parties have trouble agreeing about anything, it was quite striking to see Senators Blumenthal (D-CT) and Blackburn (R-TN) leading bi-partisan hearings about what they perceive to be Facebook’s pernicious influence. 

Yet there are also perfectly sensible corporate reasons for FB’s name change.  Facebook is only one operating unit in a company that also boasts Instagram and WhatsApp, among others.  Of those units, Facebook is the one with the oldest user base and relatively stagnant growth – anathemas to tech investors.  It is quite logical to rebrand a company away from the slowest growing, most tarnished of its brands.  The stock rose about 3% after the re-branding announcement, and that seems appropriate. 

I’ll leave the prospects of investing in the metaverse to those with better corporate analysis and futurist credentials, but the name change will help with that mission as well.  FB has a huge war chest and is highly profitable.  Some of that money will inevitably be deployed toward acquisitions.  Acquisitions usually need to be approved by regulators.  Vocal critics like Senator Warren (D-MA) have called for FB’s breakup, presumably making them eager to oppose any future acquisitions.  While I don’t believe that the company’s most influential critics will be swayed by a mere name change, it can’t hurt FB’s regulatory standing if it acquires companies using the name Meta rather than Facebook.   

And now a quick follow up on yesterday’s piece about Apple (AAPL) and Amazon (AMZN) earnings.  Both reported disappointing results.  AAPL met its $1.24 estimate and missed slightly on revenues.  In this environment, where the majority of major companies exceed their analyst estimates, a meet is as good as a miss.  AMZN’s report was even more dire, missing on the top and bottom lines, and warning of sharply lower profits next quarter (the lower end of the projection was zero).   Both stocks fell after hours, and are currently lower as I write this. 

Yet the options market was pricing in smaller post-earnings moves than past history would have indicated, and that is clearly the outcome this morning.  AAPL is -2.7%, and the stock has spent the morning in the 147-148 range where implied volatility was lowest.  AMZN is -3%, and the stock arrested its fall in the 3250-3300 range, just before the low plateau of its implied volatility curve began to turn sharply higher.  Bear in mind also that both stocks were sharply higher yesterday, so that the 2-day move in AMZN is currently under 1.5% and AAPL’s is under 0.5%.  It was obvious that traders were speculating against volatility, and those bets appear to be paying off. 

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