The leaders of Facebook (NASDAQ:FB) and Apple (NASDAQ:AAPL) have been exchanging barbs in the media for the past few months, accusing each other of unfairly wielding power. The fight between tech stocks is ultimately about access to users and their data — which translates to profit and power.
Corinne Cardina, Fool.com’s healthcare and cannabis bureau chief, spoke with Nick Sciple, the bureau chief of tech, energy, and industrials, on a Fool Live episode recorded Feb. 11, about why Facebook is threatened by Apple’s iOS update and what could be at stake for investors.
Nick Sciple: We’re in a brave new world. We’re all deciding what kind of the rules are supposed to be. Remember, Facebook is still only 13-years-old, 14-years-old age. It’s still a very new property when it comes to human behavior, so I think we’re going to figure this stuff out. It’s going to be a challenge for Facebook though. I think there will be no ends to Facebook long term. I think it’s going to be more regulated than it is today. They are going to be navigating lots of different regulatory regimes, just like they already are where there’s different issues in Europe versus in the U.S. versus overseas. I think that’s only going to continue to be an issue for Facebook. Now you can say that’s a negative, they have to navigate all these regulations. We can talk about Apple with their new iOS update trying to limit their ability to track users which may hurt their ability to monetize. I think those are all real concerns. On the other side of that, though, as it makes it harder for Facebook to make money, it also makes it harder for competitors or new entrants to come into the market. I think there’s a fair argument to say that it ossifies the market. If you can’t track folks across different platforms than maybe the people that have the big giant platform like Facebook, and maybe it augments their advantage a little bit. So I think it’s a double-edged sword. I think Facebook is going to navigate that this legal stuff however they need to. They’re going to come out of the backend of this with incredible market power. It’s just a question of ‘how does it look on the backend’, like does the Federal Trade Commission come in and break the company up and give us a separate Instagram, Facebook, Messenger, and WhatsApp. From an investor point of view, I wouldn’t mind that either! Slap of multiple on a slap a prices-to-sales multiple on Instagram. Slap a price-to-sales multiple on WhatsApp. So I think this is going to get a lot of attention and a lot of noise. But when it comes to the actual execution of the business. You can look at the numbers all over the place, behaviors aren’t changing. People are still opening new accounts, people are still spending time on the platform. So from my perspective is I wouldn’t get too distracted with the noise from an investor’s point of view and from like what I want society to look like and all those sorts of things — that’s an important thing — but I don’t think the business long term, this is going to be kneecap, that the ability for the business to deliver returns.
Corinne Cardina: Totally. We did promise a quick chat on Oculus. Nick, I am not super familiar with virtual reality (VR) as the resident healthcare person. I imagine they’ve said the pandemic has been a tailwind for the segment because it connects people in the new immersive way. Have you actually put on a virtual reality headset? Apparently, it was a hot holiday item, according to Facebook.
Sciple: I have not, but every single person that I’ve talked to that has, has said, it’s incredible and we’ve reached the point where we’ve had hit the inflection point. There’s this idea that when I think of brands in virtual reality, I could name you and other brand with the exception of Oculus. Facebook has the ability to just plow massive amounts in the research and development to build up the platform. The other thing is Facebook needs to build up some app store or operating system of its own. We talked about this threat from Apple and Apple’s controlling of that ecosystem and the threat it provides to Facebook. This gives Facebook the opportunity if VR really is something that gains traction and they can become the leader, it gives them the opportunity to really control their own hardware stack and maybe escape from the Apple issues there. I don’t think the market is pricing the opportunity for VR as much as it should. I’m really excited about that part of the business, but even if VR becomes nothing, I’d still think Facebook can be a great investment for you going forward. An exciting area to watch lots of potential, but it’s not thesis-crushing if it doesn’t work out.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
