Picture Credit: Dima Solomin
Social media giant Meta, took a nosedive last week when the stock price collapsed by 26%, following weak quarterly earnings and a dreary outlook. With the biggest one day drop ever, ahead of the 19% plummet it saw in July 2018, Meta’s market value plunged by over $230 billion, bringing it to $660 billion. The core Facebook social networking app lost about half a million users over the fourth quarter from the previous quarter, the first decline like this in all its 18 year history.
The most troubling interpretation of recent happenings leads many to believe that users are leaving the platform in favour for rivals such as TikTok, which users are increasingly attracted to. In hopes of winning back lost users, Meta is also leaning heavily on products such as Reels on Instagram, which are difficult in the revenue category as they generate less revenue short-term, but executives believe will have a larger growth potential.
Picture Credit: Yiorgos Ntrahas
Meta’s advertising revenue is desiccating due to the effect of Apple’s (AAPL) privacy rules. Apple’s introduction of an “App Tracking Transparency” update to its mobile operating system makes it so that Facebook and other apps must now explicitly ask permission to track users behaviour. Many users opted out of this and therefore there is less user data, making targeting ads, which are one of the main ways of making money, more difficult. Meta has stated that Apple’s changes will cost them approximately $10 billion in revenue over the next year. Meta’s quarterly user growth rate was also the slowest it has been in at least three years. The company has said that macroeconomic challenges such as inflation and supply chain disruptions, are also weighing on advertiser budgets.
In these doubtful times, Meta’s executives have pointed to other potential opportunities, such as allowing the money to flow to WhatsApp, which is yet to generate any substantial revenue. But such efforts might be inutile since WhatsApp is still at its budding stages. Investors have more of a probability of scrutinising if Meta’s other apps such as Instagram might begin to hit their top on user growth.
Other social media stocks were down, following Facebook’s plummet. Pinterest, Snapchat and Twitter were all experiencing similar effects. Shares of Snapchat were down by 23% , Pinterest lost more than 10%, and Twitter shares were off by more than 5%.
Picture Credit: Dylan Gillis
A JP Morgan analyst said “Meta is seeing a significant slowdown in advertising growth while embarking on an expensive, uncertain, multiyear transition to the Metaverse.” Meta broke out its reality labs segment for the first time, compromising its future focused business that aims to develop the metaverse. The segment lost $10 billion last year, and those losses are growing as it bets on the metaverse.
Even though the odds seem to be stacked against it, Wednesday recorded modest gains across its family of apps, with Meta stocks jumping 2.7%. It is unclear on what might happen next for Meta stocks, will the sudden uplift keep growing or will Wednesday be just a small spark of hope before Meta starts to plummet again?
February 11th 2022 | 6:30 PM