Meta Platforms can enhance profits with ValueAct's plan to cut costs.

Company: Meta Platforms (META)

The company develops technologies that help individuals find communities and grow businesses. Its products allow people to connect and share with friends and family through various devices, including mobile phones, personal computers, virtual reality headsets, wearables, and in-home devices. The company operates in two segments: Family of Apps (FoA) and Reality Labs (RL). FoA includes Facebook, Instagram, Messenger, WhatsApp, and other services. RL focuses on augmented and virtual reality-related consumer hardware, software, and content. Facebook enables users to connect, share, discover, and communicate with others on mobile devices and personal computers. Instagram is a platform where people can express themselves through photos, videos, and private messaging. Messenger is a messaging app that connects people with friends, family, groups, and businesses across platforms and devices.

Stock Market Value: $1.39T ($554.08 per share)

Activist: ValueAct Capital

Ownership: n/a

Average Cost: n/a

Over the past 20 years, ValueAct has been a leading corporate governance investor. The firm's principals typically hold board seats in half of its core portfolio positions, with a total of 56 public company seats over 23 years. ValueAct has launched activist campaigns at 26 information technology companies and has achieved an average return of 54.63% compared to 30.16% for the Russell 2000 over the same period.

What's happening

ValueAct has taken an approximately $1 billion position in Meta Platforms.

Behind the scenes

ValueAct has a wealth of experience in large technology companies, particularly Microsoft and Salesforce. During his tenure on Microsoft's board from March 2014 to the end of 2017, ValueAct CEO Mason Morfit played a crucial role in the company's transformation from a traditional software business to a cloud-based enterprise software giant, with a market cap that has grown from $250 billion to over $3 trillion today. At Salesforce, Morfit was appointed to the board in January 2023 as the company faced pressure from activists, and since then, the stock has more than doubled in value.

ValueAct has invested in Meta Platforms, acquiring a $1 billion stake in the company. Meta's products allow people to connect and share through various platforms and devices, including mobile devices, personal computers, virtual reality headsets, wearables, and in-home devices. The company operates through two segments: Family of Apps (FoA) and Reality Labs (RL). FoA includes social media applications such as Facebook, Instagram, Messenger, and WhatsApp, while RL includes augmented and virtual reality-related consumer hardware, software, and content. Meta's stock price has been volatile this year, with dips below $400 per share and highs above $600, providing ValueAct with an opportunity to acquire its position at a favorable price. With the stock price up about 56% in 2024, ValueAct still sees significant untapped value in Meta. Meta is expected to deliver $30 in EPS by 2026, which at a 20-times multiple would put the company at approximately $600 per share. However, the -$10 EPS from the RL segment is made up of -$7 from

ValueAct is not taking a "flyer" on AI; instead, the firm is a thoughtful and diligent investor with extensive experience from both sides of AI. The firm has been in the boardroom at Microsoft and Salesforce, two of the largest developers of AI, and has been an active shareholder at companies like Spotify, The New York Times, Expedia, and Recruit (Indeed.com), some of the largest users and beneficiaries of AI. Therefore, when ValueAct invests in AI, it is not just spit balling, but rather thoroughly understanding AI and how its customers can use it.

When considering how ValueAct will approach its engagement with Meta going forward, it is crucial to acknowledge that Meta is a controlled company, with Mark Zuckerberg holding approximately 61% of the company's voting power. Despite this, ValueAct has a strong track record of creating value at controlled or quasi-controlled companies, including engagements at Martha Stewart Living, The New York Times, 21st Century Fox, Spotify, and KKR. In these situations, ValueAct averaged a return of 124.12% compared to an average of 30.79% for the relevant market benchmark. This is because ValueAct understands that activism is about the power of the idea, the power of the argument, and the power of persuasion. As such, even in its investments in non-controlled companies, the firm almost always only takes one board seat because it is confident that its ideas will resonate. However, given Meta's controlled structure, we don't expect ValueAct to push as hard for a board seat here as it might at other portfolio companies. In a controlled company, you can almost be as effective as an active shareholder as you can as a director. That being

Ken Squire is both the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.