 Good day, fellow investors. There has been a lot of commotion regarding Facebook because the stock is going down, has been going down, but okay, I don't think a lot of the fundamentals changed. And as I said, I will cover this talk publicly on YouTube. I am long this talk. And with me today is again, Yao Kai, that I think you know from previous videos on Micron and AMD. Hi, Yao Kai. Hi, fellow investors. See, Sven has beaten some format into me. Thank you, Yao Kai. And so I'll give you again my story, what I think about the new regulatory environment just quickly as we have already discussed that. And then Yao Kai is going to add something about the programmers, the employees in Facebook as he is living there in California. And also about the corporate culture, which is a pretty tech things and how it is data-driven, which will give you a different insight on Facebook that I'm sure you didn't get anywhere else. So let me start with just quickly my part of the story, just the fundamentals, and then we'll switch to Yao Kai. So Facebook, a big company that I think has a great mode and has a price earnings ratio of 20.78 forward price earnings ratio, even lower. It is printing cash, they're starting to do buyback. So everything looks like, okay, this is starting to become a great business that rewards shareholders. Plus, what I think it's a large mode, the number of daily active users is 1.5 billion, 2 billion people, monthly active users. When we talk about users and Facebook, we mean the whole ecosystem, Facebook, Instagram, WhatsApp, VR, everything that they are doing. We don't even know what will be the VR, what are the possibilities for monetization, Instagram shopping, whatever that might happen in the future. Further, if we just quickly take a look at the balance sheet, Yao Kai, what do you think about their inventory? Non-existent. So that's another showing of how a great business is, they have no inventory, no issues with that. So revenue has been constantly going up. We'll talk more about late at the end of the video about the risks and about the revenue and what might happen there. But my core thinking about Facebook is that the ad is underpriced there. If you want to put an ad in a Dutch magazine, fashion magazine, it costs 10,000 euro and maybe 30,000 people will see it. The same thing on Facebook will cost you 300 euro or 300 dollar. So when Madison Avenue gets it, that it's so underpriced or they are forced from a recession, we might see these revenue numbers easily quadruple over the next five to 10 years if Facebook stays normal. So that's one. And then every revenue per user should explode. We are very, very differentiated across the globe. At some point in time, it should all go up. The concerns on privacy, which are big companies, they're always concerns. Google has been attacked over the last 20 years, every day a new lawsuit, 2012 antitrust issues in Europe. Similarly, Microsoft, the EU has been finding it every year probably and there will be more and more fines. However, what is the key? The key is that the European Union Prosecutor is probably using Google to do his searches where to bring the other prosecutors to lunch. They're probably using Microsoft to type their thesis and they're probably using Facebook to communicate to their mistresses, sorry, wives. So the key is what the users will be using no matter what is going on with the politics with the news. And therefore, my story with Facebook is unchanged over the last six months. There will be probably some higher costs, but unlinearity is normal. And now we're giving you the new story with Yao Kai that we'll talk about corporate culture, but first about the employees and the programming and then we'll finish together with what are the possible risks as investing is always about risk and reward. So Yao Kai, the word is for you. Hi, so we'll start with the perspective from a programmer's side. So programmers are also more fancily known as software engineers, but we're just programmers. We want to work with other smart people. We want to get paid a lot. So Facebook provides both of that. And in fact, together with Google, they are the two top employee, employer choices here in the Bay Area because you get paid a lot and then the quality of engineers they have is, has a reputation of being highest. So they can continue to attract top talent. And that is very important for any tech company. You want that top talent. So that's one thing. The second thing is, I think Facebook is either one of the first or the first big companies adopt what's known as growth hacking methodology. So growth hacking is... Now you're talking about the corporate corporate culture. Okay. Yeah. So growth hacking is a name that was given to a almost like a philosophy of how one should develop products. So some pillars are cross functional teams. So in a same team, they're typically small. You got a product manager, you get a designer, you get a lead engineer and then some kind of data analyst. And they are physically close together. They constantly communicate. And that's very different from what business used to be built. It used to be you have a design department, then you have a engineering department, and you have some kind of product management department. And then it's almost like a hiring situation where the top of the hierarchy decide what to build. The product guys decide how to prioritize. And then they give it to the design people. The design people comes up with a thing and that flows down to the engineers. There's no background forwards. So that's one difference. And the other one is extremely high frequency of experiments. So these growth teams, the way they do things is completely data driven. They want to, they form hypotheses. They come up with ways to validate these hypotheses. And if they stick, it goes in, it stays there in the product. If it doesn't, then it gets thrown out. Most of the time, the idea is a bad idea. So that's how they're dealing with it. And then, and you can see how this doesn't work for traditional company because the turnaround is a quarter. You have quarterly planning meetings, right? If you run an experiment in the quarter, we'll give you 20 quarters of your company's probably already dead. So that's a very different way of dealing with things. And it has shown up in the way they grow. It's completely insane. They were able to grow something so big, still pretty fast with different products and everything. And within them, the competition, they even have competition within their own products. So the Facebook main platform is competing against Instagram and Messenger and WhatsApp. So basically, they're cannibalizing their own thing instead of letting other people cannibalize their market, which is a tough call, but long term, it's going to be a much better position than sitting there, sitting on the laurels and let other people take your lunch. I'd rather take my own lunch, really. And what I have seen just from a user experience, I started the Facebook page for what I do, I think six months ago or something like that. And actually, the software was crap when compared to YouTube. This week, they introduced Creator Studio for Creators, the monetization equal to YouTube, everything, data, everything. So they're really going after YouTube on the video side, also on Facebook, Instagram, IGTV, everything. And this is very interesting how they test everything because then as investors, we know, okay, everything that goes on in Facebook is not some crazy CEO like Chipotle that comes in and we are going to do this, market it over across the whole country. And then if it blows, it blows who cares. But everything is really tested first on small samples. If it works bigger sample. And so they're not going to do anything that screws up the company, which a lot of people are thinking, oh, if they put too many ads or something like that. No, everything is really everything's measured. No, they are not taking chances. And then that's the difference between Facebook and Snapchat. If you look at Snapchat, they did that redesign, like out of the blue, and everybody hated it. It will, it's, I mean, Facebook had redesigns, people complain about it, but people stayed on. That's the difference. So probably did not measure, Facebook probably did not measure how many people complained about the new design, they probably measured how many people left it because of the new design, how many people, you know, how does that change a total number of minutes or something like that on their platform. But Snapchat, when they did that, they actually lost users. Yeah, so they made a new design and then what's this just out of the blue to everybody, which is not logical. But okay, Snapchat is a different story. In any case, what else about the culture, the data driven, where is the power of Facebook lying there? Because it's a methodology. So it's, it's a method, it doesn't depend. Obviously, they need a person to give them general direction. So Zuckerberg is probably still has to do something, right? It's like, we need to do this area. But the, having a methodology enables, gives a structure for people to move a lot faster. If they test 17 new ideas every week per growth team on average, right? And you as a, you know, some older, some, some, like old tech guard that has quarterly releases, how you're going to compete, you don't even have enough material to do that to get the same data as them. Obviously, this growth hacking thing, this experimentation thing is getting wider and wider adoption. So newer companies like Airbnb and stuff, they also, they also do less, which is partly why Airbnb grows so fast. It could be that. So, and, and just on the side, I mean, the, I'm doing a, I'm joining a startup. And then what we want to do is bring this to China. In China, this isn't fully appreciated yet. So there is, there's a language gap is that the barrier is actually pretty, pretty hefty. So in China, that's not why they don't make that may give us an edge as well. Okay. We're trying to copy what Facebook does. And this corporate culture, plus we have seen the big cash flows because they are printing money. What just your views are as a specialist, what about the new technologies and the new things they are working on implementing testing VR, AR, all those kinds of things. So those are, those are moonshots. So it's very hard to, to, to gauge the, the potential because at the moment we're still at the stage where VR is hardware constraint. And there's nothing much you can do about that other than wait for the hardware to catch up. So the reason it's hardware constraint, you say, oh, VR is such a small screen. I have, I have no problem with my, my TV or my monitor because your monitor has lower resolution than the VR screen, a VR screen so close to your eye, you see the pixels. If you see the pixels too long, you get dizzy. And then when you turn your head, you, the VR thing has to follow your head, right? The points to a particular place. Now, if the lag is anything more than I think was seven milliseconds or something, you get dizzy. It's just a human thing. And that means every time you do anything, the response has to come back within seven milliseconds. How does that achieve? Yeah, you can optimize it in software in somewhat, but the main thing is going to come with hardware. Also, the thing is still too heavy. You got a ginormous stuff on your head, which fires your neck. So there's a lot of things that still has to happen before there is a becomes like a wide adopt, like widespread use. So it's 20 years to go. We can say, but at the price earnings ratio of 20, who cares? Oh, I'm not even my long thesis doesn't even involve VR for this thing. So let's finish with the risks. So my main risk is over the long term, as we see how they test everything, I don't think they will do something to screw up to lose customers because the network as long, the longer it is there, the stronger it gets there. And there are WhatsApp, everything. The biggest risk from a stock market perspective is always a recession. Simply, when there is a recession, ads get cut. So unlinearity in the revenue, lower growth, lower everything. Wall Street analysts will project it differently. And then you will have a much lower valuation, which is what I'm waiting for. So if there is a recession, Facebook will go down because that's the nature of the business. And then we might pick it up at a bigger opportunity. Any risks to add, Jaokai? So there is also the regulatory risk. I mean, it's not as bad as most people make it out is. I think the risk is, okay, there's going to be some regulation on security and user privacy, whatnot. The users don't even care that much, but the politicians, when they get it, they will probably come up with something to regulate them. So that will add some costs. But this thing is actually a blessing in disguise. Now, if the social media were to be regulated by governments to have certain guards, like security guards, to protect the user information, that means cost, fixed cost. Unless you do it with humans, if you do it with code, the cost of writing something to protect one person is the same as the cost of protecting things for 10 million people. So that's going to be bad for any startups. So it's going to make a startup come up to take their lunch much less likely, because suddenly their capital requirement goes up. You now need to hire five guys, which costs you $2 million a year total for a whole year or two, just to make sure that you comply with the regulation. Same thing happened with GDPR. I had the first hand experience. GDPR had a huge impact in my company. We had to do a lot of things to cover for that. But we had the revenue. We had lots of revenue. We can do that. We can put the people on it. If you're a startup, you end up not being able to operate in Europe. It's simple as that. So this is something that I think, yes, it's going to add cost, but long term, it will become part of their mode, which is why pharmaceuticals are so profitable, because regulation is so heavy. And the other thing is just people get envious. The Chinese, which don't even allow Facebook, and then maybe the Europeans are like, give me off of our citizens. We're not getting cut out of it or something. They get envious and they take some. I think those are, with all that in mind, I'm still very much long Facebook, but to concur, to like echo your point, yeah, it's a pro cyclical company. It's not a counter cyclical company, like a bankruptcy lawyer or something. This thing's revenue is going to decline probably faster than other industries, because people will cut a percentage of probably ads. Yeah, not just revenue will go down, but the percentage would of the ad in terms of revenue would go down as well. So they'll get like double hit, but then it's going to, because they have very little fixed cost, right? That's, it's going to be a great time to be buying Facebook. I own four shares of it. So in any case, we'll just be watching like this, and I'll make, we'll make a video update every six months, because there is no need to talk about Facebook every two days, because nothing much has changed after the earnings. We'll see what's new and then simply update it over the long term. And when we go big, we'll let our viewers know. All right. Thank you for joining us today. Please check the Yau guys invest with JYK YouTube channel. Always if you want a tech technical investment analysis, very in depth analysis on there, a lot of stocks, a lot of bed mounting about some new Chinese IPOs that you might want to short, always check Yau guys channel. I might get into trouble back in China with all my bashing of Chinese IPOs, but okay. You can always get out because YouTube is not allowed in China. So how can they know that you are bashing them? They can't, right? Well, just joking, but okay. Well, thank you everybody for watching. If you have any special request of a stock that you might want us to see discussing from our backgrounds, please let us know in the comments. Thank you. Bye. Bye.