What Investors Should Consider Before Investing in Meta Platforms

Meta Platforms (META 2.98%) has faced its fair share of criticism in recent months despite its rebranding efforts from Facebook, and some investors continue to view the business with mixed skepticism. Whether or not Meta will be able to make meaningful changes to its various social media platforms that satisfy its critics remains to be seen, but there's no debating the continued strength and profitability of its underlying business.

In this segment of Backstage Pass, recorded on Dec. 13, Fool contributors Rachel Warren, Jason Hall, and Toby Bordelon discuss some recent developments with Meta and its business.

Jason Hall: Marky Mark Zuckerberg is getting pressure again. The guy's got total control over Facebook voting shares. He's the king. He has complete control of the company. But a group of investors are pressuring him and calling for a true independent chairperson to take over the board.

Here's the thing: It's this weird juxtaposition with Facebook because of its business and so many of the issues with its platform, and is it really healthy for users, misinformation, so many things that we could say.

Its anti-competitive nature as a business and buying out every potential competitor, and essentially having this monopoly over social media, which has become the de facto way that people consume news. Line up all of these things about it.

But here's the thing, guys: We love these founder-led businesses that have a young, dynamic CEO that's in charge, that has a substantial stake in the business. Other companies, you've got Jeff Green at The Trade Desk, who's built an incredible business, has a substantial stake in it. Still young-ish.

Tobi Lütke at Shopify, guy just turned 40, he was 23 when he started the business. Jeff Bezos at Amazon just retired, ran the business for the better part of a quarter-century before stepping away.

Here's the question, guys. Is this an example of investors who just want it both ways? Rachel, do you want to weigh in first on this?

Rachel Warren: Sure. I think so, I think that's part of it. I always have trouble when I'm thinking about Facebook because from a business perspective, the business has pretty much everything you could wish for as a tech/growth investor.

But there's these concerns, and I think that's why there's a lot of people such as myself that have shied away from buying the stock. I love when we see a company that's founder-led and has that aspect of its leadership in place.

Although I would argue, if you're looking at investing at a company and you have certain ethical concerns, I think a founder-led company like Shopify is a much better choice that's continually benefiting people and helping entrepreneurs succeed.

But I think the thing is Facebook has become such a huge tool for people, not just to connect socially, not just to meet new people and make friends, or connect with people they've known a long time no matter where they are in the world. But I think it's also become a way for people who run businesses of all sizes essentially to market to a new customer base.

We see these positive aspects, socialization and marketing, but then we also see this really negative side of misinformation and a real toxic aspect to the platform. That really concerns me. I think the company and the business is fantastic.

I think you have investors who want it both ways, but I think it's also a tough situation. When the user is the product, but the business model and the algorithms innately can be designed to hurt the user, how do you resolve that? I think you need oversight. I think you need better quality controls.

I think that will only go so far with the current leadership structure. I'm glad to see people calling for more oversight and more accountability. But I think it only goes so far. As I said, I think the business itself is great.

It's these other kind of aspects that are more ethically minded, if you will, that have kept me from investing in it. I think it's something as an investor to be aware of.

This is a company that is built on, as we've talked about many times, the user being the product, and when that's the case and you have a company that has as much sway as Facebook does, and the leadership is not going anywhere, there's only so much in terms of changes that I think investors can reasonably expect to see.

Jason Hall: Changes ain't coming from inside of Facebook, whether it's the boardroom or otherwise.

Rachel Warren: I agree. [laughs]

Jason Hall: The way the incentives are aligned, it is what it is. Toby.

Toby Bordelon: Yes, I think that's right. I think this is certainly the example of investors wanting it both ways and they want to change their mind now that things have changed.

Look, Mark Zuckerberg controls the company and it doesn't matter who the chairman is. It just doesn't. There is no such thing as an independent chair when you have a single investor who also happens to be the CEO, who can replace that person anytime they want with a simple shareholder vote because they control the vote.

This doesn't make any sense. There is no independent chair of Facebook as long as Mark Zuckerberg has voting control. That's just not the way this works. There is no universe in which you can suddenly make it happen. Sorry. It's not like this is unknown. We knew what the structure was when Facebook went public.

Since the IPO [initial public offering], we have known that Zuckerberg controls this company. I remember, all the investment thesis for so long was about with a visionary CEO, and I'm going to be investing alongside him and see where this ride goes.

Well, here's where it went. If you're not comfortable with that, sell your shares because there's no way to change who's at control at this point. It's not like this is a surprise. You can't say, I didn't know what I was investing in. Well, read the prospectus. That was clear as day as a risk factor in that initial prospectus. I feel like I'm getting worked up here, but [laughs] it is what it is.

Rachel Warren: I appreciate that though. [laughs] I get it. [laughs]

Toby Bordelon: I am not a fan of super voting shares, I don't like dual share classes. This is not a scenario where you can say someone changed roles on me and surprised me because it was set up this way in the beginning.

Jason Hall: Been that way since the beginning.

Toby Bordelon: Either you take it or leave it, and if you want to leave it, that's cool. Made a lot of money to invest in the beginning.

Rachel Warren: I think.

Toby Bordelon: But don't try to like, what I mean. It's like it is what it is.

Rachel Warren: I think people have underestimated though, maybe at least initially the power of that business model and what a big aspect it would play in the digitization of our society.

You think when Facebook first started and then what it is now. It's everything from a way for people to socialize to a way to get customers for their business. People really rely on it. I think that dependency is, it makes sense, that's how the world works now. We run on Facebook essentially, and I think that Mark Zuckerberg, he is a brilliant guy and I think he's a visionary in many ways.

Jason Hall: No doubt about it.

Rachel Warren: I think there's no way to disagree with that. But I think that the direction that the platform has gone and how it has been of such detriment to some people as well, it's cause for concern, but I don't know what the solution is.

Jason Hall: I think to me. I think the takeaway I am going to answer a little bit of a different question. But I think it's when you think about these businesses and the people that have control. You darn sure better understand the incentives. When you think about Facebook's business, this is an entire, entirely, it's a product of the economic model.

At the end of the day, the economic model is to drive engagements, to drive traffic, to drive daily users, to make it more valuable to advertisers. That's the entire business model. That's exactly, that's entirely what it is. When at the end of the day, you can have all the high-minded beliefs in the world. But at the end of the day, the almighty dollar rules with the business, and that's the case. That's not an indictment of anybody, but I think it's just a reminder as investors, understand how the companies that you own and that you're interested in. How do they actually make money, who are the customers, who were the users, who are all of the stakeholders? How does the monetization fit with all of them?

That's going to inform a lot about that business. I think that's maybe my biggest take.