Good Morning. QQQs -40bps early with Semis -1.3% vs. Software flat. Yields +2-3bps across the curve as Crude +3% (Brent $100+) weighs on the market following some US/Iran fighting (US struck 5 Iranian tankers). Lots of chatter overnight about META’s Muse app, their own version of Instinct and so far reviews are great with many raving about ease of use and slick interface. The app already hitting #4 on the Apple app store, and likely rises to at least #2 by end of the day.
META +4.5% on the news. Our working assumption is that Muse keeps gaining traction and becomes a hit, and this is where META’s distribution advantage starts to matter. Once a product works, it can accelerate adoption enormously. We think this moves both ends of the valuation range higher. Our old ~$550 risk case was roughly 15x buyside’s $36 CY27 EPS number; we think the emerging consumer agent opportunity is worth at least a couple of multiple turns, moving that toward $600 (~17x), while opening up a bigger upside case. Zuck outlined to Alex Heath that this is an agent that can help run small businesses and connect directly to META’s ad systems. More importantly, we think this could move META closer to the transaction, rather than just monetizing the discovery that precedes it. In other words, META could double dip here on both ad and transaction fees: for example, a retailer pays META to show you an Instagram ad for shoes. Under the proposed agent model, you could ask Muse to find and buy shoes, and the retailer could pay META a small fee for bringing it the sale. While a product like this was expected this month, we’re impressed with the rollout so far. Still early, but we like what we’re seeing and think today’s +4% should at least hold (unless market weakness throws a wrench in things).
We’re also hearing plenty of frustration from GOOGL -2% investors asking why Google wasn’t out in front of this, with rotation into META potentially adding to the pressure today. This release should only intensify the agentic fears that Instinct has already started stirring up around OTAs, DASH, CART, etc. The risk isn’t necessarily that agents replace the underlying services; it’s that they take over the customer relationship and steer the transaction, forcing platforms to compete harder for the order and potentially give up some of the economics. Check out this conversation on Muse from skinnybundle on TMTB Slack that demonstrates this: