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[00:00:23] Marcus Johnson: Hey, gang, it's Friday, November 13th. Minda, Max, and listeners, welcome to Behind the Numbers: an EMARKETER podcast made possible by AI Digital. I'm Marcus. Joining me for today's conversation we have two of our social media expert senior analysts living in New York, Minda Smiley.

[00:00:37] Minda Smiley: Hello.

[00:00:38] Marcus Johnson: Hello there. And principal analyst living in [00:00:40] Philly, Max Willens.

[00:00:41] Max Willens: Yo.

[00:00:41] Marcus Johnson: Hello. Today's fact.

[00:00:46] Marcus Johnson: Where does all the lobster come from? This is a hint of where I was this last past weekend.

[00:00:53] Minda Smiley: New Ham- It's

[00:00:53] Max Willens: not Maine, is it?

[00:00:54] Minda Smiley: New Hampshire.

[00:00:54] Marcus Johnson: It is Maine. So I told you New Hampshire- Oh ... because the surprise is I went to New Hampshire for [00:01:00] the Halloween weekend to see a friend with two little ones, and we trick-or-treated.

[00:01:03] Marcus Johnson: It's a lot of fun. But then I drove an hour to the right, also known as east, and met up with-

[00:01:09] Max Willens: Paul Verna.

[00:01:10] Marcus Johnson: Paul Verna.

[00:01:12] Minda Smiley: Aw.

[00:01:12] Max Willens: Nice.

[00:01:13] Marcus Johnson: Yes. Fun. I hung out with Paul Verna, stayed in his guest house. Very generous. So Paul Verna, been remarried forever. People who listen to [00:01:20] the podcast will remember him. Weekly listen extraordinaire and veteran.

[00:01:24] Marcus Johnson: We got to hang out, which was amazing, so thank you so much to Paul for his hospitality.

[00:01:27] Minda Smiley: Wow. Shout out, Paul.

[00:01:28] Marcus Johnson: Yeah. He says hi to both of you. Actually, just to one of you. I'll let you decide. But back to today's Inspired by That, 'cause he lives in the great state of Maine, and he treated me to some wonderful lobster.

[00:01:38] Marcus Johnson: So the state of Maine, responsible for over [00:01:40] 80%, the estimates, uh, vary, but 80% of, uh, the nation's total lobster catch is in that one state. Together with Massachusetts, the second-largest producer, the two states account for over 90% of total US American lobster, uh, harvest. You guys fans? We like lobster?

[00:01:58] Minda Smiley: So I like lobster.

[00:01:59] Minda Smiley: I actually don't [00:02:00] like lobster rolls, though. I know that's- Oh, Minda ... a hot take. I know. I, I don't know. Something about them, I just ... I'm, I'm not even a picky eater, but I just don't, I don't know.

[00:02:07] Marcus Johnson: Okay, no to ... But a nice lobster chowder, perhaps? But I do like ...

[00:02:09] Minda Smiley: Yeah. Yeah. Mm-hmm.

[00:02:11] Marcus Johnson: Or just regular? Okay. And Max, there was a nod, so he's in.

[00:02:14] Marcus Johnson: Oh, yeah. Um, it's interesting, because lobster wasn't always expensive and fancy. So the story of [00:02:20] lobster, which I didn't realize, 18th century colonial America, lobsters, they were so abundant that storms would wash them up on the shore in massive piles, so it was considered low-class food. Uh, and they were often referred to as cockroaches of the sea.

[00:02:33] Marcus Johnson: That changed in the late 19th century. So railroads began serving lobster to inland [00:02:40] passengers who were unfamiliar with its reputation. And so they basically just marketed them as a delicacy. They were served with butter. They had this striking red shell. Uh, and so they were, um, yeah, they were supposed to be this exotic delicacy.

[00:02:52] Marcus Johnson: And wealthy travelers brought their newfound taste for lobster back to the major cities that they were from, New York, Chicago, [00:03:00] others, where restaurants began charging, uh, premium prices. And eventually, overfishing reduced supplies, drove prices even higher, and it cemented lobster's status as a luxury food.

[00:03:11] Minda Smiley: Wow. The power of marketing.

[00:03:12] Marcus Johnson: Speaking of, uh, marketing and advertising and what this podcast discusses, today's real topic, good pivot, [00:03:20] Minda, the big three questions surrounding Meta.

[00:03:26] Marcus Johnson: All right, we set the table first. Q3 2026, Meta made $63 billion in total revenue. It's up a pretty ridiculous 26% year over year, same as last Q3. North America makes [00:03:40] up close to half, 45% of Meta's total, has done for the last five years. That grew 33% in Q3, up from 23% last Q3, so even faster, much, much faster.

[00:03:50] Marcus Johnson: Uh, the fastest quarterly growth for the region since Q2 of 2021 So North America did very well. Top line was also [00:04:00] very good. Uh, investors might disagree with that. Uh, we'll discuss why. Minda, uh, you're gonna give us, uh, your first big question for Meta at the moment. We're gonna put together a consensus top three at the end, but what's top of your list?

[00:04:13] Minda Smiley: Obviously, Muse made quite a splash. Uh, and it was a big topic during earnings. And [00:04:20] but I think at this point, especially as we head into the holidays, head into next year, like I'm just really paying attention to, to what extent will Muse actually take off? And then to what extent will Meta actually be able to monetize it?

[00:04:30] Minda Smiley: Those are massive questions. Mm-hmm. And I think it's still really, really early, which is, you know, partly why, um, this is such a big question on my mind. I think some of the da- data we're seeing now, I'm not really [00:04:40] sure it really could paint a picture of where things are really going to go long-term. I mean, I, I was actually looking at some figures from Similarweb this morning.

[00:04:47] Minda Smiley: They were telling me that daily active users for Muse were up 37.4% week over week, which is not insignificant, but it's still a, you know, it's still a relatively small user base. I think there's just so much to unpack with Muse. [00:05:00] I mean, not, not only just the usage, but also how will they monetize that usage?

[00:05:03] Minda Smiley: Yeah. And even if the usage does become meaningful, is it still going to be able to justify the massive amounts they're spending on- Right ... AI? And so I, I think they just have... There's several questions around Muse, I guess, is what I'm getting at.

[00:05:14] Marcus Johnson: There are. It's a great place to start, and, um, I wanna throw this out at you guys, and Max, get your reaction to this [00:05:20] first perhaps.

[00:05:20] Marcus Johnson: So Asa Fitch of the Wall Street Journal wrote in late October, uh, that over 10 million people in the US and Canada had downloaded the Muse app. I think it's closer to 13 or 14 million now. But at the time, he's going off the 10 million when he wrote the article. We talked about this before, Max, drop in the bucket compared to the total users.

[00:05:37] Marcus Johnson: But ChatGPT's app took about three [00:05:40] times as long to get to 10 million downloads according to Sensor Tower, he points out, and Grok and Claude took even longer. Um, the problem is, even if Muse skyrockets to 100 million users, so this is some back of a napkin math that, uh, Mr. Fitch did, which I thought was really interesting.

[00:05:55] Marcus Johnson: He says, "The problem is, even if Muse skyrockets to 100 million users," up from 10-ish, "uh, next [00:06:00] year paying $20 a month, it would only add $24 billion to Meta's annual revenue. Good for most companies, but about 12% of next year's anticipated capital spending, according to Fact Set. Uh, associated advertising and fees could add more to that pot, but probably not a ton.

[00:06:16] Marcus Johnson: Meta made about $67 of revenue per [00:06:20] daily active user, almost all from ads in the year to the end of Q3. So for 100 million users, that would equate to another nearly $7 billion. Hardly enough to pay the bills." So even if they get to these 100 million numbers, Max, it does seem like the economics are against Muse.

[00:06:35] Max Willens: Yeah, I mean, the, the question of how they're going to monetize and the role that they see [00:06:40] Muse fulfilling for its users are, are I think really closely intertwined, right? So as of right now, Meta is able to harvest these gobs of ad revenue from its individual users because people have ef- effectively turned Instagram and Facebook into these things that they just kind of pop open out of habit several times a day and spend a bunch of time [00:07:00] mindlessly scrolling through them.

[00:07:01] Max Willens: That's obviously something that it took them years and years and years to sort of train millions and I guess technically now billions of people to do. It's not clear to me yet, at least, how they are going to find a way toward getting Muse, uh, into a similar role without potentially either cannibalizing some of the [00:07:20] time that people are spending inside Instagram or, or Facebook, and also do so in a way that makes a lot of money.

[00:07:24] Max Willens: And I think one of the things that's really interesting about the early data that's kind of emerged from Muse is it seems like A pretty profound change in terms of the way that their products have rolled out historically, right? Like, obviously everybody knows [00:07:40] Facebook started as a thing that took root among college-aged people.

[00:07:44] Max Willens: Instagram w- was sort of similar, but in a more organic way. It just kind of became a, a cool thing that young people were using. And the early data on Muse shows almost the opposite. Like, according to Apptopia data- Mm-hmm ... almost half of, um, Muse's regular users are over [00:08:00] the age of 46. And- Wow ... that's just typically not the sort of audience you want to monopolize first when you're building a big consumer product.

[00:08:08] Max Willens: But it's, it's potentially a really, really interesting signal of, uh, around really m- Meta's future overall, right? Like, they've built this really enormous, interesting graph [00:08:20] of personal taste, small business information, location data, really robust information, uh, and corpus of knowledge that the, their AI systems have been trained on as far as recommendation.

[00:08:31] Max Willens: And it is possible that the sort of early going of this is going to be something that's designed more for older, busier people. I mean, Alexander Wang, uh, who leads one [00:08:40] of, uh, Meta's AI divisions, said that Muse is for moms. And there again, you know, like, that's both really fascinating, but also, like, potentially kind of a troubling prospect if you're trying to game out a way that Muse can, can make back the gigantic amounts of sums that, that Meta's invested in it so far.

[00:08:55] Minda Smiley: On that point of, like, this just be- being kind of different for Meta, they even acknowledge that they're, [00:09:00] they're going to have to monetize Muse way earlier than they're used to when, uh, you know, compared to their social apps. And so that presents just another challenge, uh, uh, you know, to kind of build on everything else they're facing is that, um, you know, the, the clock is already ticking in a way that it just hasn't in the past, uh, for, for their other apps that have become so popular.

[00:09:17] Marcus Johnson: Yeah, they're already monetizing, uh, well, [00:09:20] going with the subscription tiers, $20, $100 for he- more heavy users. Zuckerberg saying that, uh, Muse could possibly, um, charge a small fee on transactions. Uh, small businesses could adopt it to bring in customers. So there are ways to make money, but the, the number of people it's gonna have to pull in, um, for it to make any kind of meaningful amounts of money, and not just downloads, though.

[00:09:38] Marcus Johnson: Sense塔 was saying in terms of [00:09:40] daily active users, it's 2.5 million. Um, these numbers from, uh, about a couple of weeks ago, but still, you need people not just to be download the thing, but be using it quite regularly. Max, what's another one of your big questions?

[00:09:51] Max Willens: It's directly tied to the Questions surrounding Muse and really the, the question that, that I think is very important to ask about Muse, [00:10:00] and frankly a lot of its other peers in the kind of upper crust of, of tech companies, is how is everybody going to respond to all this debt that they're piling up, right?

[00:10:08] Max Willens: So in the last, um, couple of weeks, uh, Meta has issued around $25 billion in bonds, uh, 15 billion in the US, another 9 billion in, in euros in the, in the [00:10:20] EU. It's the first time they've raised, uh, debt in Europe. Basically, you know, if you, if you do the math, they've doubled their debt load in the past 12 months, right?

[00:10:28] Max Willens: In many respects, Meta is not like other companies, right? I mean, $63 billion in a quarter is, you know, still a surreal number every time I think about it. But the reality is that significant [00:10:40] debt can hamstring almost anybody, right? I mean, look at Skydance. Look at France, you know? I mean, like, if your debt load gets significant enough, it can really curtail and rein in, um, even the most powerful, um, entities.

[00:10:55] Max Willens: And so I, I think that as they continue to race forward with this, and oh, and that's also before you [00:11:00] even talk about the Class C stock that they issued as another way to sort of try to raise more money to feed this beast that they're, um, growing over there. Every time I think about it, it raises more questions for me about, like, what they're going to do, how this is going to work, how the market's gonna respond and so on.

[00:11:12] Marcus Johnson: Yeah, the question of, about its cash flow is negative free cash flow, the canary in the coal mine. There's an Axios piece by Matt Phillips noting that [00:11:20] Meta's joined big tech's negative free cash flow club, joining Amazon, Meta, Oracle, all who have gone into the negative free cash flow, um, area as of late.

[00:11:30] Marcus Johnson: He writes, "Meta's gone from one of the greatest cash generators in the history of corporate America to a company that had negative free cash flow of 2 billion in Q3." It's nothing crazy, but it's supposed to balloon [00:11:40] to 14 billion in Q4 according to Fact Set. Um, he does note that it doesn't mean Meta's bank account is getting dangerously low.

[00:11:47] Marcus Johnson: The company reports over 82 billion in cash and marketable securities, um, socked away. But yeah, still, uh, definitely not a, a green flag. Minda, what else you got for us?

[00:11:57] Minda Smiley: One of the big questions I also have [00:12:00] going into next year is, like, where do their legal woes go from here? 'Cause when we think back to this time of last year, I mean, it was right before Australia's, um, you know, social media ban for young people went into effect.

[00:12:10] Minda Smiley: Um, there was sort of this, like, moment of, like, is 2026 going to be the year where we really start to see meaningful shifts in terms of not only financially how these companies are affected, but [00:12:20] just, like, actual usage among these demographics. Then of course at the beginning of this year, Meta lost, um, you know, two, two landmark lawsuits related to h- to child safety.

[00:12:29] Minda Smiley: So I think there was, again, like, there was kind of this momentum of where this is all going. But then this August we saw the, Meta settled with the state AGs. Of course it did, uh, you know, Meta did, uh, make [00:12:40] changes to how kids can use its platforms. To what extent that will meaningly affect usage, I mean, we've talked about this on the podcast before.

[00:12:46] Minda Smiley: Like, uh, I, I think a lot of people think, like, yes, it is changes, but are they substantial? Mm-hmm. Uh, maybe not so much. Will kids be able to evade them? Probably. So they still face lawsuits going into next year, trials going into next year. [00:13:00] There's still quite a bit of scrutiny on social media platforms in general, even outside of just, like, the legal world.

[00:13:05] Minda Smiley: A lot of parents just obviously have a lot of concerns around usage, especially as we see Gen Alpha. You know, the oldest Gen Alphas turn 13 this year, right? They're, they're kind of the next generation people are looking at in terms of how they're gonna use these platforms. And so I will say, like, I think with the settlement happening over the summer, I'm [00:13:20] curious how that will impact future cases.

[00:13:22] Minda Smiley: Will Meta kind of point and say, "Hey, we made all these changes" and try to make the argument that some, maybe some of the past arguments don't stand as much anymore because of the changes they made. Um, but I definitely think it's, it's still going to be a, a big topic, but I, I do think at the same time I don't think it's maybe progressed as quickly as maybe people [00:13:40] initially thought, especially because there's been a lot of discussion around the fact that, that the ban in Australia, um, has just kind of been an, an, an enforcement nightmare.

[00:13:48] Marcus Johnson: Yeah, Max, it's interesting 'cause Meta's- It's been fine before, but the numbers haven't really been high enough to, to raise eyebrows or really grab headlines, and now you're starting to see headline-- I mean, we had an [00:14:00] article written by a colleague, Marisa Jones, who's one of our newsletter analysts. Uh, she was noting Meta's fined $25 billion in New Mexico over claims it misled consumers on Facebook's privacy and content policies.

[00:14:10] Marcus Johnson: These numbers, again, for a company making $63 billion a quarter, even $25 billion, it's a lot, but it's not the end of the world. If you're spending $200 billion on CapEx [00:14:20] next year for AI things, it starts to become more meaningful.

[00:14:23] Max Willens: I think Me- uh, the points that, that Min has made here about the lawsuits are, are really, really important here, right?

[00:14:28] Max Willens: Because the reality is that there are a lot more lawsuits on the horizon, uh, in, in 2027. And, um, you know, even though, as we've talked about already, Meta's ability to generate [00:14:40] cash and revenue is, is really, you know, has few peers, but if they wind up having to settle, um, or, you know, lose judgments, um, if they take some of these all the way to trial, that potentially, uh, d- dents their balance sheet in a way that, uh, could start to feel quite uncomfortable pretty quickly, especially in light of the significant debt that they're [00:15:00] taking on, uh, to fund the AI build-out that we've been talking about already during this episode.

[00:15:05] Minda Smiley: And it is interesting to think about, like, yeah, if, if all of this was playing out without everything going on with AI and their AI spending, like, I wonder how that would look different or if that would even change how they're approaching all of this because yeah, I mean, I feel like when you think about how much they're spending, it just, it really does [00:15:20] complicate things for them.

[00:15:20] Marcus Johnson: We've got time for one more quick one. Max, you had something else as well.

[00:15:23] Max Willens: To me, it's gonna be really interesting, and I have a lot of questions about w- what Meta's going to do to respond to the pretty ugly initial response to Features, uh, on Instagram, right? So for, for people that, um, are not familiar, Features is a, a feature that Instagram, [00:15:40] uh, is starting to test out, which is basically gives people the ability to watch more kinda premium-looking and -feeling content on their platform.

[00:15:48] Max Willens: So it's, instead of vertical video, it's horizontally aligned video where the pieces of content can last up to 90 minutes. And this is, in some ways, completely unsurprising because as, you know, Minda and I have talked about for a long [00:16:00] time, Instagram in particular has its sights set on, uh, the television screens in our house.

[00:16:04] Max Willens: It really, really wants to find a way to become a bigger part of our, uh, TV watching time. And so them launching Features makes a ton of sense, but they have had to deal with a not insignificant amount of blowback from the creator community, who are [00:16:20] all sort of looking around and going, "Where's the rev share, guys?

[00:16:22] Max Willens: What's going on?" You know, a lot of creators have kind of grumpily made their peace with the rev share that, you know, is sort of foundational to YouTube's business model. But when they look at the fact that so far at least Instagram has not made any proclamations about how they're gonna share the revenue for these pieces of content, [00:16:40] which, you know, you could naturally expect to be quite expensive, right?

[00:16:42] Max Willens: Like, filming something with your iPhone in your car or just, you know, with a ring light and a tripod in your house basically costs mostly just time. But if you wanna go through the, the effort of making something that lasts the length of a television episode or a feature length film and you want it to be horizontally aligned and [00:17:00] be of a production quality sufficient that people are gonna sit around and watch it, that requires significant investment.

[00:17:05] Max Willens: And I think that just saying to the people that might do these things, "But hey, we've got great distribution," like, that's, that's not an argument that I think is going to be enough for a lot of creators. And so I'm really, really interested to see what Meta does to respond to the fact that a lot of creators have sort of held their noses [00:17:20] upon being presented with this, this rollout so far.

[00:17:22] Minda Smiley: And I think we're really just seeing, um, I mean, this has been happening for a while, as Max said, but we're really just seeing Instagram try to, like, take a page from YouTube's playbook essentially and see what they can do there. And, you know, when we think about how Instagram can compete with streamers, I mean, I'll just throw in a quick stat from a report I recently wrote.

[00:17:38] Minda Smiley: We know that US adult [00:17:40] Instagram users will spend an average of 25 minutes per day watching video on the app this year. We expect that. So that actually outpaces Amazon Prime, uh, and Peacock. So that, that's, that, you know, that is interesting when you think about, like, how- From just a time spent perspective, they definitely, um, have carved out a lane for themselves.

[00:17:57] Minda Smiley: But I think, you know, actually getting people to watch [00:18:00] Instagram on TV screens is really a whole different beast. Yeah. The YouTube ecosystem is just so different from the Instagram one, and so I think that will be a challenge. But that's not to say that people won't watch longer videos on Instagram on their phones.

[00:18:10] Marcus Johnson: Minda, uh, what's the report called?

[00:18:12] Minda Smiley: Instagram Marketing 2026. Pretty, pretty straightforward.

[00:18:15] Marcus Johnson: Very nice. Uh, PRO+ subscribers, EMARKETER.com, you can get that right now. Um, not [00:18:20] right now. Wait a second for the episode to finish. Um, I got one more, which we don't really have time to talk about. I just wanna throw it out there.

[00:18:25] Marcus Johnson: What if smart glasses, like Meta's Ray-Bans, just got rid of the camera? Like, what would the adoption look like if they just, like, no more camera? Like, how much more people would say, "Sure, this could be the next computing in- in-computer interface or computing interface." Because there just seems to be article [00:18:40] after article about how creepy they are about having a camera attached to them, so just wondered what that could do maybe to the market.

[00:18:46] Marcus Johnson: Let's put together a top three big questions surrounding Meta. Minda, which one do you wanna add to the list?

[00:18:52] Minda Smiley: I'm gonna steal Max's, the one about how they're gonna respond to creator frustrations around, um, revenue sharing. Mm. I think that's a really, um, that's something they're definitely going to need to [00:19:00] address quickly if they want features to take off in any real way.

[00:19:03] Marcus Johnson: Nice. And Max?

[00:19:04] Max Willens: I'm just gonna stick with what I've brought and throw the question about debt on there. You can't double your debt load in 12 months, um, and not have it raise some questions for, uh, investors and watchers of your company, so I'm sticking with that one.

[00:19:15] Marcus Johnson: Very nice. I'll go with, what will it take for Meta's Muse app to take flight?[00:19:20]

[00:19:20] Marcus Johnson: It talks a lot about at the top, so I think that's also a really good one. And that's our top three, and that's all we've got time for for today's episode. Thank you so much to my guests. Thank you to Minda.

[00:19:27] Minda Smiley: Thanks.

[00:19:28] Marcus Johnson: And Max.

[00:19:29] Max Willens: Always a pleasure, Marcus. Thank you.

[00:19:30] Marcus Johnson: The production crew, Luigi and Lance, and thanks to everyone for listening in to Behind the Numbers: an EMARKETER podcast, made possible by AI Digital.

[00:19:36] Marcus Johnson: Subscribe, follow, rate, review, all that. We'll be back on Monday discussing [00:19:40] the big three questions for Amazon. But until then, happiest of weekends.