Meta Class C Stock

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The current thing in tech and business is Meta’s stock split and funding AI spend.

Today’s Lineup

Warp CEO Kevin Weil at 11:45 AM
Cognition Head of Cognition Industries MC Lader at 12:00 PM
PlantSwitch Founder & CEO Dillon Baxter at 12:10 PM
Stellios Founder & CEO Richard Starson at 12:20 PM
Xona Co-Founder & CEO Brian Manning at 12:30 PM

Run of Show

Meta Class C Stock

Meta is introducing a new Class C stock. The plan is to distribute one Class C share for every existing A or B share at the start of next year. Economically, this will function like a 2-for-1 stock split. This specific move isn’t a fundraising opportunity, it doesn’t make Zuckerberg richer, and it doesn’t dilute anyone’s ownership percentage, but it does have a bunch of interesting knock on effects, and has led to two wildly different narratives around the motivations for the moves.

First, some history, back in April of 2018, Meta (then Facebook) proposed creating nonvoting Class C shares. Back then they were proposing a distribution of two new Class C shares for every existing share. The reasoning outlined by Zuck was that this model would allow him to fund the Chan Zuckerberg Initiative while keeping control of Facebook. But shareholders challenged the arrangement, and Facebook withdrew the proposal in September 2017 before a scheduled Delaware trial. After the withdrawal, Zuckerberg said it was no big deal because the stock had gone up enough that he could finance his philanthropic goals without changing the share structure.

The goal was clear and hasn’t really changed in the past decade: allow Zuckerberg to sell/donate/pay taxes with his economic Meta stake, without losing control over the company he founded two decades ago and has had complete control over basically the entire time.

So things come up, tax bills, philanthropic opportunities, AI buildouts, etc, and Zuck needs to manage his control against these issues as they arise.

The NYT tells the story as highly tax related, and there are some interesting details.

Mr. Zuckerberg had been negotiating with Meta’s board since July. Over dinner with board members on Sept. 9, he effectively gave them an ultimatum: If a deal wasn’t struck, he would sell his home in Palo Alto, and the listing would be public. He planned to put the home up for sale on Sept. 13, he said, giving the board 96 hours to avert a public-relations crisis.Meta, which is based nearby in Menlo Park, scrambled for a solution. On Wednesday, the company unveiled the result: In January, it will issue a new class of stock to shareholders, which Mr. Zuckerberg can sell to pay the potential wealth tax without cutting into his 60.6 percent voting power at the Silicon Valley firm. It also helps the tech giant fund its enormous investments in artificial intelligence.The back-and-forth between Mr. Zuckerberg and Meta was detailed in an extraordinary tranche of paperwork filed with the Securities and Exchange Commission on Wednesday. The filings pull back the curtain, in vivid detail, on how billionaires like Mr. Zuckerberg — whose net worth stands at $247 billion — are navigating the risk posed by California’s proposed tax. The filings also reveal Mr. Zuckerberg’s leverage over the board of Meta, a company he has been inextricably linked with since he founded it in his Harvard dorm room in 2004.

This is probably true, but only one factor, even selling 5% of his stake immediately to fund the full billionaire tax would only dilute him to 57.57%, still a majority. Not an overt crisis. But if Meta has to issue a bunch more stock to fund AI capex, that could eventually push Zuck’s ownership down, as Semafor reports.

These two stories are oddly narrow, when it’s clear that it’s actually the combination of factors that really drives this move. Still, the whole thing is sort of a nothingburger, as Semafor correctly contextualizes: “Alphabet made a similar move in 2014, executing a 2-for-1 stock split that introduced non-voting shares alongside super-voting shares, which allowed the combined control of co-founders Larry Page and Sergey Brin to remain at just over 50%.”

The funny thing here is that both storylines are being heralded as negative, when through the eyes of former Meta board member Peter Thiel, they would be completely rational. You should relocate out of California before a billionaire tax goes into effect if you can, and you should also issue new equity to fund next generation technology if you have an opportunity in front of you. There is still healthy debate over Meta’s ROI on their AI investments, but at least you have a company that’s acting, for the first time in decades, like the great stagnation is over.

Clip Spotlight: Palo Alto Networks CEO Nikesh Arora says he’s more concerned about “trophy hunters” searching for the next security vulnerability than the PHP vulnerability itself.

"I'm more concerned about what comes next. This is just one. There's more to come."

"The problem is when you start seeing big things like this happen, you start finding people who are trophy hunters."

"They're going to say, 'Where can I find the next PHP and prove to the world that I'm as smart as the last guy.'"