Meta is the largest social media company in the world with over 3.5 billion daily active users of at least one of its four core products (Facebook, Instagram, Messenger, and WhatsApp). It’s also a former holding of ours that we have just recently repurchased. Because of its incredible delivery and measurement infrastructure, Meta has created a virtuous cycle where more users enable the company to deliver more targeted content and ads which then leads to more engagement by users and more spending by advertisers. Meta’s recent quarterly reports are excellent examples of this dynamic. They reported strong growth in new users, user engagement, and ad prices. Most impressively, they grew all these metrics despite increasing ad impressions faster than daily active users.1 This dynamic is special and worth highlighting. On most platforms, users either aggressively skip ads or pay to avoid them entirely, whereas Meta’s ability to increase ad loads and engagement suggests users either don’t mind the ads or actively enjoy the tailored ads being served up.
Furthermore, Meta is one of the few businesses whose core product has seen clear and measurable positive returns from artificial intelligence spending. In 2021, Apple severely restricted their ability to gain information about their users by launching an initiative called App Tracking Transparency (ATT). This loss of information occurred almost simultaneously with the rise of TikTok, whose platform was delivering more compelling short-form content to users through its AI-driven content algorithm and causing declining engagement on Meta’s platforms. Meta responded by investing hundreds of billions of dollars in artificial intelligence. Meta’s huge advantages of billions more users and advertisers in its network allowed it to not only stop the bleeding but return to sustained growth in engagement, users, impressions, and prices.
This whole episode, in addition to Wal-Mart’s multi-channel renaissance and Microsoft’s cloud and infrastructure strength after completely missing the mobile transition, has helped us understand how resilient the largest networks really are. We have long understood that the value to users of large networks is exponentially greater than the value of smaller networks and that, as a result, larger networks have more time and flexibility to copycat. Despite comprehending this advantage, we still underestimated its power. While we believed it was strong enough to maintain advantages in business-to-business environments and slow-moving consumer spaces, we didn’t have as much confidence in its ability to allow large networks to consistently fend off competitors in lower switching cost and more trendy consumer spaces.
Furthermore, we didn’t fully understand that large networks that are thoroughly enmeshed with their customers through a range of products and services also benefit from another somewhat hidden advantage. Because of these large networks’ one-stop-shop customer value propositions, we believe they often have hidden future revenue opportunities for which analysts don’t necessarily give them credit. For example, when mobile eroded the profitability of Microsoft Windows, analysts included this negative in their models. However, they didn’t include the positive of the cloud infrastructure services revenue that Microsoft would generate by fast-following Amazon’s AWS initiative. Similarly, analysts included the competitive pressure from Amazon to Walmart’s core retail business in their models, but they didn’t include the high-margin online advertising revenue that Walmart would generate from following Amazon into this business. While many midsized networks are squeezed out by these new competitors and innovations, we believe the largest, most customer-enmeshed networks in each industry often benefit from these forces because the incremental profit from new business opportunities tends to be greater than the lost profit from disrupted businesses.
1 See https://investor.atmeta.com/investor-news/press-release-details/2025/Meta-Reports-Third-Quarter-2025-Results/default.aspx.
To read a more detailed description on META as discussed in a prior investment letter, please click here.
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