Text/Wang Xinxi Source: Redianweiping
During the Spring Festival in 2022, the biggest news in the field of technology Internet is undoubtedly the day after Meta announced its results, and the stock price plummeted by more than 26%, which is an unprecedented one-day decline in the history of the US stock market.
It was also the darkest hour zacker Burke had never seen before. However, for Xiao Za, the past will eventually pass, but the dream of the metaverse cannot be stopped.
If you want to ask why capital is so cold-blooded to Meta? Why is there so much disapproval of a social king who is ambitious to build the next generation of the Internet? We may look at the relationship between the main business and the auxiliary industry, the upward space of the existing business and the potential of the future business, and the psychology of the capital market.
Comparing the difficulties encountered by Meta, we will shift our eyes to the domestic situation, and we will find that the situation of Xiaomi is quite similar - Lei Jun has recovered slightly since the announcement of car manufacturing at the beginning of last year, and has since gone all the way down.
On January 27, 2022, Xiaomi's stock price fell another 5% to HK$16.58, below the issue price. On the day of the listing, Lei Jun had said that he would double the stock price of investors who bought millet on the day of listing. On January 4, 2021, Xiaomi fulfilled its promise. But now, Xiaomi's stock price is once again back to before liberation.
At present, the continued downturn in Xiaomi's stock price is still continuing. A few days ago, Bank of America Securities issued a report reflecting the intensification of competition from China and Europe, and it is expected that Xiaomi shipments will further weaken, and lower Xiaomi's 2022 and 2023 profit forecasts by 5% and 6%, which is a forecast for the smartphone environment and a downward adjustment of expectations for Xiaomi's competitiveness.
The similarity between Xiao Za and Lei Jun is that they both encounter bottlenecks and crises in their main business, and then they both make a huge determination to re-invest in a new business that has invested a lot and cannot see profitability in the short term. Compared with Xiao Za to build a meta-universe at all costs, Lei Jun chose to invest in building a car at all costs - in order to show his determination, Lei Jun once said that he was willing to bet all his reputation in life to build a car.
Xiao Za directly changed the company name to Meta, that is, Metavalse (abbreviation for metaverse). Changing the name of the group to the name of the track is like a company suddenly announcing that it wants to enter "real estate" one day, and directly changing the company name to "real estate limited company". Obviously, the company's name change is to express its determination to the outside world, and in the future, Xiao Za may have to go black in the meta-universe, even if it is a loss, it is difficult to give up halfway.
We know that Meta currently has a number of real-world problems on the main social track, including the stagnation of Facebook user growth – the number of daily active users worldwide has fallen from 1.93 billion to 1.929 billion for the first time in 17 years. The rise of Tik Tok to grab user time - TikTok daily active exceeded 1 billion, with an average monthly active of 2 billion. In addition, Apple's privacy policy affects Meta advertising revenue expectations, etc.
These existing business problems are all in the eyes of investors, and what causes panic in the capital market is that the core hinterland is lost, and its meta-universe business is not optimistic.
According to the report, the company's virtual reality business, Reality Labs, had a full-year net loss of $10.2 billion in 2021, compared with a loss of $6.6 billion a year ago and $4.5 billion in 2019. That is to say, the loss shows a trend of increasing year by year.
If the loss of Meta Metacosmity business may be the last straw that crushes the expectations of the capital market, then the expectations brought by Xiaomi's car to the capital market also have similarities.
Is the capital market not optimistic about Xiaomi's car? Not all of them. Capital looks at the expectation that the future of a company's main business can drive the auxiliary industry up.
It is not that the capital market cannot accept losses, but a strong main business can drive the expectations of the auxiliary industry
It is not that the capital market cannot accept a company's expected losses, but it pays more attention to whether strategic losses are strengthening the competitiveness of the main business, or whether a strong main business can have a strong and stable supporting role for strategic losses.
For example, Amazon has lost money for so many years, but its stock price has been holding up, on February 4, Amazon announced its financial report: 2021 Amazon's net revenue was $469.822 billion, an increase of 21.7% year-on-year; net profit increased by 56.41% year-on-year.
Affected by the financial report, as of the close of trading on February 4, Amazon's stock price rose by 13.54%, and the market value increased by more than 210 billion US dollars, compared with Meta, it can be described as a double day of ice and fire.
In fact, capital is very clear that Amazon's strategic loss investment over the years has been reinforcing its e-commerce retail and supply chain logistics and retail infrastructure layout, making the main business more powerful, so strong that competitors have not shaken the possibility of its main business.
Data shows that in 2021, Amazon sold $600 billion worth of goods. Total merchandise trading volume (GMV), including sales from Amazon itself and the platform, doubled in three years. In addition, the third-party platform business has been growing faster than Amazon's proprietary sales for many years (it currently accounts for nearly 65% of its GMV, compared with just 38% a decade ago).
In the cloud business, from January to September 2021, Amazon Web Services (AWS) generated a whopping $44.4 billion in revenue and a profit margin of 30%. The cloud business ranks first in the world in terms of market share.
The strong main business has undoubtedly given the capital market a good future expectation, and Amazon has not lived up to the waiting of the capital market. To this day, whether amazon in the main business - the moat of e-commerce retail, or the auxiliary industry - cloud services have achieved the first in the industry, in the smart speaker business - Echo series speaker products, is also the first in the industry.
Both Xiaomi and Meta are trying to explain to the capital market that their investment in new business is also a strategic loss, and the future business formation will form long-term profitability. But the problem is that they are not trying to open up new fist businesses at a stage when the main business moat is already deep enough and the profits are stable.
Instead, in the case of problems and bottlenecks in the main business, competitors have encroached on the revenue space of the core hinterland of the main business, and they are unable to break the situation in the main business, announcing that they want to enter a new business that requires long-term burning money, and it is difficult to have a clear expectation of future profitability.
Xiaomi's problem is that the dividends of the low-end market have been exhausted, the high-end market can not open the situation, due to the stereotype brought by the initial positioning, the premium of the millet brand has always been difficult to improve, and at the core technology and product level, compared with OV glory, there is also a lack of obvious competitiveness. In the domestic market, in Q3 2021, Xiaomi was quickly surpassed by glory, ranking in the top four in the domestic smartphone market, and the overseas market, including the Indian market, was not optimistic, and the growth rate slowed down significantly.
Xiaomi made cars to find a new locomotive business. Since the official announcement of the car in March 2021, the relevant investment institutions of Xiaomi and Lei Jun have invested in dozens of enterprises in the automotive industry chain, covering intelligent driving, chips, power batteries and other fields. According to Lei Jun's plan, Xiaomi Automobile will build a factory with an annual output of 300,000 vehicles in Beijing, and the car is expected to be mass-produced in the first half of 2024.
In short, Xiaomi's car-making cycle is still very long, the planned investment scale is very large, it is necessary to build a longer supply chain, it is a proper heavy asset burning project, investors can wait until the day of mass production, but until the car-making business is profitable, and even becomes Xiaomi's new locomotive, which is not yet shadowed.
This is quite similar to Meta, Meta invests in the meta-universe, the fundamental reason is that the main business - the social field, whether it is user time or advertising revenue, there are problems, and Meta in the short term, the main hinterland is difficult to break. In the case of a crisis in this main business cash cow and the bottomless pit of losses in the strategic business of meta-universe, it is understandable that the capital market is not optimistic.
Conversely, when the main business moat is very solid and revenue is booming, announcing that it will invest in a large project that is expected to lose money in the next few years will often drive the growth of stock prices. For example, if Apple announces the construction of a car one day, then the probability will become good news.
Because its main business, the hardware business with the iPhone as the core, and the service business with the App Store as the core, are very stable, and the stability of its revenue is very strong, it can make the cash flow of the main business continue to transfuse the auxiliary industry until the day of final profit.
The quality of Apple's products has been verified, and its brand height has also been recognized by consumers, and people will believe that if Apple cars or AR headsets and other products are mass-produced, their quality will most likely exceed the general horizontal line, and there must be certain market purchase expectations. This is actually the driving effect of a strong main business brand on the growth of the auxiliary industry.
Both Xiaomi and Meta lack the ability of this strong and stable main business to support the auxiliary industry.
This leads to the reverse of the capital market's expectations for it - you are unable to break through in the main business, what reason does capital have to believe that you will make achievements in emerging businesses that require a lot of losses in the early stage, and produce huge profits and returns in the next few years?
Threshold effect: Xiaomi and Meta should learn to meet market expectations step by step
Of course, whether it is Xiaomi or Meta, when the main business encounters a bottleneck, it does need to think about taking a new path to break the ceiling, but not this radical way.
There is a threshold effect in psychology, which refers to the fact that if a person accepts a trivial request from another person, he may further accept a larger request in order to avoid cognitive incongruity.
This phenomenon is like climbing one step at a time when climbing the threshold, so that it is easier to obtain greater requirements.
The threshold effect is actually valid in terms of the psychological expectations of the capital market.
We found that neither Xiaomi nor Meta has avoided cognitive incongruity, they are not a step up the ladder, they do not first put forward a medium-term goal, to achieve it, to enhance the capital market's ability to build new business recognition and confidence, and then put forward a larger long-term goal.
According to the threshold effect, when the main business is not done well, the new project you invest in should have a large correlation with the main business, have a certain synergy, and even bring an auxiliary role to the main business, which is also in line with your genes and ability. A typical case is Apple's smart headset business , AirPods.
Smart headphones and mobile phone business is associated, Apple will be the first product design end of the TWS form, quickly the smart headset business to do the first.
In 2019, data shows that the profit of AirPods exceeds that of the entire Xiaomi company. Data shows that Airpods can bring in almost twice the total revenue of Adobe and Uber each year, and twice the revenue of AMD in 2020.
In a recent report, Tianfeng International analyst Mingji Guo gave AirPods an estimated sales volume of 27 million units in the fourth quarter of 2021.
For Apple, this is a new cash cow business, and this ability to open up new fronts and achieve stable profitability in a few years, create added value and contribute revenue to the main business is what Xiaomi and Meta lack.
Although Xiaomi has been laying out the hardware industry chain, from bracelets to speakers to TVs, plug boards, etc., there is no real explosive product to prove its ability to create a second curve, the so-called explosive model is not a small accessory, small household appliances, but a real innovative product and can form a stable profitability.
In fact, Facebook should follow the main business as an Internet giant, doing infrastructure business, from social infrastructure to cloud service infrastructure to the system framework at the bottom, which is an important battlefield that first-line giants should strive for.
The importance of cloud computing is unquestionable, and it is also the underlying technology and infrastructure of the metacosm. Microsoft, Amazon, and Google have all developed their cloud businesses into the second curve, with Microsoft's earnings report showing that its Azure business grew 46 percent in the fiscal quarter ending December 2021, and Google Cloud revenue grew 45 percent, recording its second consecutive quarter of growth. AWS revenue growth increased from 39% to 40%, accelerating for the fourth consecutive quarter.
Zhang Wenyi, executive director of Amazon Cloud Technology Greater China, once pointed out that what the metacosm itself needs is computing, storage, machine learning, etc., which are inseparable from cloud computing. He also said that Epic Games, the company that develops the meta-universe game Fortnite, has almost all of its workloads running on Amazon Cloud Technology.
But Facebook, which aspires to build a meta-universe, is absent from the cloud service battlefield, and Xiao za also misses the cloud computing dividend given by the times to the first-line giants.
To be in line with investors' recognition of a difficult strategic goal, you need to make achievements in at least a new business of intermediate difficulty, and then put forward a larger vision, so that the capital market will more easily recognize your expectations for the completion of the new goal.
However, we see that neither Xiaomi nor Meta has followed the threshold effect to meet the expectations of the capital market step by step, but has drawn a big pie from the beginning, aiming at a big goal with great difficulty, but giving people a feeling of being in a hurry and rushing to the doctor.
Don't take it easy to all in
Judging from the industry's imagination of the metaverse, to achieve Meta's long-term goals, it is simply unrealistic in the short term, and the loss of 10 billion US dollars is only a drizzle. Meta also does not have the ability to build and construct a complete metaverse, which is not something that can be solved in the short term.
For Xiaomi, if the car is built, it is expected to increase the brand premium, and the linkage between the car and the mobile phone is also expected to drive the brand height of the mobile phone business and the internet of vehicles ecology, but if it fails, it will undoubtedly drag down the mobile phone business and delay the product technology upgrade of the mobile phone business. After all, competitors are getting stronger, but Xiaomi could have invested in the research and development of the mobile phone business and the investment in resources to build cars.
If the meta-universe business becomes, Meta will undoubtedly usher in the second growth curve, not only selling hardware, but also opening up new growth space in software revenue, but if it does not succeed, the social basic disk is more dangerous. Unlike Microsoft, Amazon, Google, google has a second growth curve such as cloud business, Google also has a stable plate of Android mobile advertising, while Meta does not have a second growth business, and investing in the metacosm is a desperate bet and a battle.
Whether it is Lei Jun, or Zach Burke, is the founder of entrepreneurial ambitions and lofty ambitions, Lei Jun has financial freedom at the age of 40 but he believes that he has achieved nothing, inspired by "Silicon Valley Fire", in the desire for success, Lei Jun founded Xiaomi.
But the development of millet to today, the bottleneck is quite obvious, it seems that for Lei Jun, the status quo of millet is still a certain distance from the success in lei jun's eyes. Therefore, Lei Jun regarded car building as the last major venture in his life, and said that this decision meant being prepared to sprint for at least 5 to 10 years.
In fact, for the founders of the company, it is necessary to have ambition, and the courage to bet heavily on future forward-looking business is also an important quality of entrepreneurs and one of the necessary conditions for successful people.
But the problem is that when the problem of the main business is not solved, rushing to a project that requires huge investment and continuous investment will often trigger pessimistic expectations in the capital market.
For capital, for this long-term money-burning project is not without patience to wait, but whether you can see the hope of expected returns, which requires that your moat in the main business is very stable, and the ability to build a second business has been verified, if the main business moat has been lost, how to let the capital suffocate with your dreams?
Zhang Yiming once reminded the team not to easily all in, and after having resources, it should not be easily leveraged. "A lot of companies, including startups, will say we're not going to take this opportunity, gamble, all in," he said. I myself think there's a big problem with casually saying all In's company. “
Zhang Yiming's sentence is actually worthy of reflection by many founders, all in essence is caught in an alley thinking, either in or out, there is no room for turning, in fact, whether it is a person or a company, falling into this state is dangerous.
A company and a person's survival is similar, to flexibly respond to the crisis and anxiety around them, to give themselves more flexible space to move and transfer, after all, there are countless roads in life, a stud, block other roads, this is a big taboo.
This may be a lesson left by Xiaomi and Meta to other companies, and it is also worth their own reflection.
Author: Wang Xinxi Senior TMT Reviewer This article is not allowed to be reproduced without permission