Twitter and Telegram already introduced a subscription model for their services, now Meta is doing the same for Facebook and Instagram. Will that work? It’s difficult at first, says APG’s chief economist Thijs Knaap during BNR news radio’s weekly Investor Panel. “But when I look at the box next to my television now, there are as many as three paid streaming services on there.”
As usual, the Investor Panel - which included Martine Hafkamp of Fintessa asset management in addition to Knaap - began with the transaction of the week. As far as Knaap was concerned, that was the investment APG recently made in Triple Solar for pension fund client ABP.
Knaap: “This company produces so-called PVT panels. These not only generate electricity from the sun, they also use the sun's heat to heat the house and water. This makes them more efficient than ordinary solar panels. Moreover, no outdoor unit is needed, so there is no noise pollution, as can be the case with an air/water heat pump.” APG made the investment through the ABP Netherlands Energy Transition Fund (ANET). ANET was set up to invest in relatively small projects and companies that focus on (technological) solutions for energy transition.
Meta’s move to charge subscription fees for certain features on Facebook and Instagram also came up during the panel. The big tech company is launching this in Australia and New Zealand. How promising is that strategy?
Knaap: “This move reminds me of John de Mol, who in 1996, with Sport 7 (Dutch commercial television channel for broadcasting soccer, ed.), also tried to turn something that was free so far into a paid service. We all know how that ended. But when I look at the box next to my television now, there are as many as three paid streaming services on there. As far as Facebook and Instagram are concerned, my estimation is that in the beginning it will be very difficult to get users to pay for certain functionalities. It might work, but it will take a long time.”
What may increase the chances of success with Facebook and Instagram, according to Knaap, is that a paid form may give the user a better position in terms of privacy. After all, for an account on these socials, the user is now paying with his or her data.
Asked about possible motivations for Meta to look for new revenue models, Knaap said, “The big tech sector is constantly changing. Facebook was king of the Internet for a while, but that may be over at some point. I think Meta is striking the iron while it’s hot. As investors, we’ve always thought that once a company like Facebook is the market leader, with such a huge user base, it can’t be moved from its place. At Twitter, the new ‘tick box’ system hasn’t led to a mass walkout of users either. You’re not likely to leave Facebook, because your friends are all on there, too. But if it’s going to cost 12 euros a month, it will definitely be something I will think twice about before buying in.”
After big tech, it was the auto industry’s turn to be discussed. On the stock market, car manufacturers did above average. That’s not surprising, says Knaap.
“These are extremely cyclical stocks. When the stock market is doing well, car companies do extra well - and extra badly in bad stock market times. Yet car manufacturers have done even better in the stock market than you would expect based on cyclicality. And that’s because of two specific developments in the industry. The effect of the absolute shock during Covid, when parts and chips could no longer be supplied and used cars suddenly became worth much more, is now over. This allows sales to rebound. The development and sale of electric cars is also a factor. The big question here is which company is better off: a completely new car manufacturer, or a big manufacturer with associated economies of scale advantages, like Volkswagen?”
One example of a sector that is not dependent on the business cycle is the biomedical sector. An example of such a company is Galapagos, whose main drug recently proved not to be effective in treating Crohn's disease - resulting in a sharp drop in the share price.
Knaap: “In the last quarter, especially companies that supply directly to consumers did well - supermarkets and soft drink producers, for example. But you can't apply the knowledge you have as an investor to assess these kinds of companies to companies that are doing biomedical research. How those companies do it depends on how the tests go in the labs, and that has nothing to do with economics. It is nice to have a number of such companies in your portfolio, because then you have protection when the economy is not doing well. But currently, the economy is doing quite well, so it might be better for investors to seek exposure to sectors that benefit from that.”