Meta, the company formerly known as Facebook, suffered its biggest one-day wipeout ever on Thursday, as its stock plunged 26 percent and its market value fell by more than $230 billion.
The crash followed a dismal earnings report on Wednesday, as chief executive Mark Zuckerberg outlined how the company was navigating an arduous transition from social networking to the so-called virtual world of the metaverse. On Thursday, a company spokesperson echoed the statements of the earnings announcement and declined to comment further.
Here are six reasons why Meta is in a tough spot.
User growth has reached a ceiling.
The salad days of Facebook’s wild user growth are over.
While the company posted modest gains in new users in its so-called family of apps — including Instagram, Messenger and WhatsApp — on Wednesday, its main Facebook social networking app lost about half a million users in the fourth quarter from the previous quarter. .
That’s the first such decline for the company in its 18-year history, during which time it was practically defined by its ability to bring in more new users. The dip indicated that the core app may have peaked. Meta’s quarterly user growth was also the lowest in at least three years.
Meta’s executives have pointed to other growth opportunities, such as turning on the money tap at WhatsApp, the messaging service that has not yet generated substantial revenue. But those efforts are still in their infancy. Next time, investors will likely investigate whether Meta’s other apps, such as Instagram, can hit their peak in user growth.
Apple’s changes restrict Meta.
Last spring, Apple introduced an “App Tracking Transparency” update to its mobile operating system, essentially giving iPhone owners the choice of whether to let apps like Facebook monitor their online activity. Those privacy moves have now hurt Meta’s business and will likely continue to do so.
With Facebook and other apps having to explicitly ask people for permission to track their behavior, many users have opted out. That means less user data for Facebook, which makes targeting ads — one of the company’s main ways to monetize — more difficult.
Doubly painful is that iPhone users are a much more lucrative market for Facebook advertisers than, say, Android app users. People who use iPhones to access the Internet tend to spend more on products and apps served through mobile ads.
Meta said on Wednesday that Apple’s changes would cost $10 billion in revenue next year. The company has spoken out against Apple’s shifts, saying they are bad for small businesses that rely on social network advertising to reach customers. But Apple is unlikely to undo its privacy changes, and Meta’s shareholders know that.
Google steals online advertising share.
Meta’s troubles were the luck of his competitors.
David Wehner, Meta’s chief financial officer, noted on Wednesday that as Apple’s changes have given advertisers less insight into user behavior, many have begun to shift their ad budgets to other platforms. Namely Google.
In Google’s earnings call this week, the company reported record sales, particularly in its e-commerce search ads. That was exactly the same category that stumbled Meta in the final three months of 2021.
Unlike Meta, Google does not rely heavily on Apple for user data. Mr. Wehner said it was likely that Google had “much more third-party data for measurement and optimization purposes” than Meta’s advertising platform.
Mr. Wehner also pointed to Google’s deal with Apple to become the default search engine for Apple’s Safari browser. That means Google’s search ads appear in more places and take up more data that can be useful to advertisers. That’s a huge problem for Meta in the long run, especially if more advertisers switch to Google search ads.
TikTok and Reels present a riddle.
For over a year, Mr. Zuckerberg has been pointing out how formidable TikTok has been as an enemy. The China-backed app has grown to over a billion users thanks to its highly shareable and strangely addictive short video messages. And it competes fiercely with Meta’s Instagram for eyeballs and attention.
Meta has cloned TikTok with a video product feature called Instagram Reels. Mr. Zuckerberg said on Wednesday that Reels, which features prominently in people’s Instagram feeds, is currently the No. 1 engagement driver in the app.
The problem is that while Reels attracts users, it doesn’t monetize as effectively as Instagram’s other features like Stories and the main feed. That’s because it’s slower to monetize video ads as people tend to pass it by. That means the more Instagram drives people to use Reels, the less money it can make from those users.
What is the metaverse and why is it important?
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The origin. The word ‘metaverse’ describes a fully realized digital world that exists outside of the world we live in. It was conceived by Neal Stephenson in his 1992 novel ‘Snow Crash’ and the concept was further explored by Ernest Cline in his novel ‘Ready Player One’.
The future. Many in tech believe that the metaverse will usher in an era where our virtual lives will play as important a role as our physical reality. Some experts warn that it could still prove to be all the rage or even dangerous.
Mr. Zuckerberg compared the situation to a similar time several years ago when Instagram introduced its Stories feature, a clone of Snapchat. That product also didn’t make that much money for the company when it debuted, though advertising dollars eventually followed. Still, there’s no guarantee Instagram Reels can repeat that magic.
Spending on the metaverse is insane.
Zuckerberg believes so strongly that the next generation of the Internet is the metaverse — a still vague and theoretical concept where people move through different virtual and augmented-reality worlds — that he’s willing to spend a lot of money on it.
So big that last year spending exceeded $10 billion. Mr. Zuckerberg expects to spend even more in the future.
Still, there is no evidence that the bet will pay off. Unlike Facebook’s shift to mobile devices in 2012, the use of virtual reality is still the domain of niche hobbyists and has yet to really break into the mainstream. Widespread augmented reality headsets are also months — if not years — away.
In essence, Mr. Zuckerberg is asking employees, users, and investors to have faith in him and his metaverse vision. That’s a big demand for something that’s going to cost the company billions in the coming years and may never materialize.
The specter of antitrust looms.
The threat of regulators in Washington coming for Mr. Zuckerberg’s company is a headache that just won’t go away.
Meta faces multiple investigations, including from a new aggressive Federal Trade Commission and multiple prosecutors, into whether it acted in an anticompetitive manner. Lawmakers have also united around Congress’ efforts to pass antitrust laws.
Mr. Zuckerberg has argued that Meta is not a monopoly on social networks. He has furiously pointed to what he calls “unprecedented levels of competition,” including from TikTok, Apple, Google and other future adversaries.
But the threat of antitrust action has made it harder for Meta to navigate new social networking trends. In the past, Facebook bought Instagram and WhatsApp with little control as those services gained billions of users. Now, even some of Meta’s seemingly less controversial acquisitions in virtual reality and GIFs are being challenged by regulators worldwide.
Since making deals is less likely, it is Meta’s responsibility to work its way out of all the challenges.
In the past, Mr. Zuckerberg would have been given the benefit of the doubt that he would be able to do so. But at least on Thursday, confidence on Wall Street was scarce.
