Mark Zuckerberg explains to Cramer Meta's strategy to create shareholder value

Published Wed, Jun 22 20227:36 PM EDTUpdated Wed, Jun 22 20228:01 PM EDT

Kevin Stankiewicz @in/kevinstankiewicz @kevin_stank

In Wednesday's exclusive interview with Jim Cramer, Mark Zuckerberg addressed a number of important topics on the minds of the Meta Platforms (META) shareholders, including our CNBC Investing Club. The tech giant's founder and CEO explained how investing in artificial intelligence is helping Meta fend off competition from social media rival TikTok — and, crucially, offered details on making money in the metaverse. Both initiatives — combined with the company's sizable stock buyback program — will generate value for investors over the long term, Zuckerberg said. "We're quite profitable, and I think we have enough capital from what we do to do the two things — make the AI investment, make the metaverse investment — and also return more capital to shareholders," he told Cramer on "Mad Money," while adding that "we have a big enough platforms as a company that I think we should do all three of those." It's worth acknowledging that so far this year, Meta shares have lost a lot of value, down nearly 54% as of Wednesday's close. Part of that is a broader shift away from growth-oriented tech stocks, but company-specific concerns like TikTok competition as well as ad targeting headwinds related to Apple 's iOS privacy change and a potential slowdown in ad revenue have spooked investors, too. Here's what Zuckerberg said that stood out the most here at the Club, which has been a big believer in Meta stock despite its struggles. (Cramer said earlier that he came away from his separate Zuckerberg-guided tour of the metaverse Tuesday evening even more convinced that Wall Street is underestimating Meta.) AI to improve Reels Zuckerberg identified two major trends that are driving the company formerly known as Facebook's business: the metaverse over the long term and artificial intelligence in the near term. Zuckerberg specifically stressed the role AI is playing in improving Reels, the company's short-term video feature on Instagram and Facebook that was launched two years ago in response to the soaring popularity of TikTok. Reels is very important to Meta, which in February reported the first quarter-over-quarter decline in daily active users on record . Wall Street is closely monitoring the trajectory of Reels consumption and the company's ability to monetize it through advertisements. Given how popular TikTok is with younger generations, investors want to be sure Instagram remains relevant with that key demographic. Zuckerberg said AI is the thread that runs through both the user-focused part of Reels, i.e. making sure they see stuff they enjoy so they spend more time watching in the future, and on the advertising side, i.e. making sure brands feel it's worthwhile to direct marketing spending toward Meta's platforms. "AI is really just this massive wave that we're riding for all of our services," Zuckerberg said. "For social media, AI is helping us rank better content and show people better content like Reels. ... Already, 20% of the time that people spend on Instagram is on Reels and 50% of the time people spend on Facebook is in video, of which a meaningful part of that is Reels and growing. So, ranking that content is a big deal. For the ad system, being able to put the most interesting and relevant ads in front of people is basically a big AI problem." In June, the company announced in a blog post that its AI division, known as Meta AI, was getting "a new decentralized organizational structure." Chief Technology Officer Andrew Bosworth wrote that the move would "accelerate the adoption of important new technology across the company." Meta's engineers are empowered to make improvements to its artificial intelligence engines, Zuckerberg told Cramer, indicating there was a sense of urgency around the systems. He also noted Meta's development of the AI Research SuperCluster. (Quick aside: the supercomputer contains thousands of Club holding Nvidia 's (NVDA) graphics processing units.) "Were going hard at this, and I think that's the right thing to do because there's a lot of innovation to be had and a lot of improvements to all these services," Zuckerberg said, adding later: "Our engineers are shipping improvements to the models every week. We check something in and relevance goes up by a few percent, and we repeat and do that the next week. This is just a huge part of what I've always focused on in running this company is getting the velocity to be very quick, so we can keep on making fast improvements to this. Eventually, you reach tipping points. ... Already being 20% of the time on Instagram is a pretty big deal, but I think there's a lot more to go there." Metaverse timeline The company's decision to change its name from Facebook to Meta Platforms last year was a rather obvious way to signal a new corporate focus. Meta is backing it up, spending spending billions of dollars per year to build out the software and hardware for an immersive, interactive world called the metaverse. The investment is real, but not all investors are buying in on Zuckerberg's grand long-term vision. A potential skeptical line of thinking goes something like this: Will Meta even be able to successfully build a metaverse that people want to spend time for entertainment, education, work or some combination of the three? And even if they accomplish that, how long will it take for the company to meaningfully make money from metaverse users, justifying its massive investments into creating to that virtual world? Zuckerberg on Wednesday offered details on his 2030 vision . "Our North Star is that, by the end of the decade, we hope to basically get to around a billion people in the metaverse doing hundreds of dollars of commerce each. [They could be] buying digital goods, digital content, different things to express themselves, so whether that's clothing for their avatar or different digital goods for their virtual home or things to decorate their virtual conference room, utilities to be more productive in virtual and augmented reality and across the metaverse overall. So, I think there's going to be a massive economy around this." Realizing that full money-making potential will take time, Zuckerberg stressed. However, he said Meta is following the same strategy it used on its initial Facebook service then later Instagram, which grew into a social media behemoth after the company acquired the photo-sharing platform a decade ago. Right now, the CEO said it's being implemented at messaging app WhatsApp, which Meta bought in 2014, and the metaverse after that. "Our playbook over time has been build services, try to serve as money people, get our services to a billion, two billion, three billion people, and then we basically scale the monetization after that. We've done that with Facebook and Instagram. WhatsApp is really going to be the next chapter, with business messaging and commerce being a big thing there. Then around the metaverse and all the commerce and digital goods around that, I think that's going to be a really big leg of our business especially over the next several years as we get into the second half of this decade, too." Sandberg's departure Zuckerberg also addressed the planned departure of his longtime No. 2 executive, Sheryl Sandberg, who earlier this month announced she'd be stepping down as chief operating officer. She intends to keep serving on Meta's board of directors. Javier Olivan , the company's current chief growth officer, will become COO. But Zuckerberg explained it'll be different organizationally with Olivan as COO. There's no doubt it's going to be a different world running this company without her. For where we are today, I don't think it makes sense to replace her directly. ... For where we are today, I really don't think it makes sense anymore for us to have a product and engineer side and a business side of the company. I think it needs to be a lot more integrated. What we're doing is basically taking the different business and operations functions and combining them in with the product functions to have a much more integrated and functional company." (Jim Cramer's Charitable Trust is long META and NVDA. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. 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Mark Zuckerberg, CEO of Meta Platforms, appears on CNBC's "Mad Money" with Jim Cramer on June 22, 2022.

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