Six reasons why Meta is struggling

Meta, formerly known as Facebook, suffered its biggest one-day washout on Thursday, when its shares plummeted 26%, causing the company to lose more than $250 billion in value. market.

The drop came after a dismal earnings report on Wednesday, when its founder, Mark Zuckerberg, explained that the company is navigating a complicated transition from social media to the virtual world of the so-called “metaverse”. On Thursday, a company spokesman reiterated statements from its 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 days of huge increase in Facebook users are over.

While the company on Wednesday reported modest gains in new users across its “family” of apps — which includes Instagram, Messenger and WhatsApp — its flagship social networking app, Facebook, lost about 500,000 users in the fourth quarter. compared to the previous quarter.

It’s the first such decline for the company in its 18-year history, a period in which it was virtually defined by its ability to attract new users.

Investors will likely now examine whether Meta’s other apps, like Instagram, are reaching peak user growth.

Changes at Apple are limiting the Meta

Last spring, Apple introduced the “Transparency in App Tracking” update to its mobile operating system, essentially giving iPhone owners the option of whether or not to allow apps like Facebook to monitor their online activities. These privacy measures have harmed Meta’s business and are likely to continue to do so.

Now that Facebook and other apps must explicitly ask people for permission to track their behavior, many users have opted out. That means less user data for Facebook, which makes it harder to target advertising — one of the company’s main revenue streams.

Doubly problematic is that iPhone users are a much more profitable market for Facebook advertisers than, say, Android app users. People who use iPhones to access the internet typically spend more on products and apps offered to them through mobile ads.

Meta said on Wednesday that Apple’s changes would cost $10 billion in revenue next year.

The company has criticized Apple’s changes and said they are bad for small firms that rely on social media advertising to reach customers. But Apple is unlikely to reverse its privacy changes, and Meta shareholders know that.

Google is stealing share of online advertising

Meta’s problems have been the good fortune of its competitors.

On Wednesday, David Wehner, Meta’s chief financial officer, noted that as changes at Apple have given advertisers less visibility into user behavior, many have begun to shift their advertising budgets to other platforms. Namely, Google.

On Google’s earnings call this week, the company posted record sales, primarily in e-commerce ads on the site’s searches. This was the same category that failed the Meta for the last three months of 2021.

Unlike Meta, Google doesn’t rely heavily on Apple for user data. Wehner said Google is likely to have “far more third-party data for measurement and optimization purposes” than Meta’s ad platform.

Wehner also mentioned Google’s agreement to be the default search engine for Apple’s Safari browser. This means that Google search ads tend to appear in more places, receiving more data that can be useful to advertisers. This is a big problem for Meta in the long run, especially if more advertisers switch to Google search ads.

TikTok and Reels represent an enigma

For more than a year now, Zuckerberg has been pointing out that TikTok is a formidable enemy. The China-backed app has grown to over 1 billion users with its highly shareable and strangely addictive short video posts. And it’s competing fiercely for attention with Meta’s Instagram.

Meta cloned TikTok with a video function called Reels on Instagram. Zuckerberg said Wednesday that Reels, which are featured prominently on people’s Instagram pages, are currently the biggest driver of engagement on the app.

The problem is, while Reels can attract users, they don’t make money as effectively as other Instagram features like stories and the main feed. It takes longer to make money from video ads because people tend to ignore them. This means that the more Instagram pushes people to use Reels, the less money it can make from those users.

Spending in the metaverse is crazy

Zuckerberg is so convinced that the next generation of the internet is the metaverse — a still nebulous, theoretical concept that involves people moving through different worlds of virtual and augmented reality — that he’s willing to spend a lot on it.

So much so that spending totaled more than US$ 10 billion last year. Zuckerberg expects to spend even more in the future.

However, there is no evidence that the bet will pay off.

The specter of antitrust looms large

The threat of regulators in Washington coming after Zuckerberg’s company is a headache that just won’t go away.

Meta faces several investigations, including from a now more aggressive Federal Trade Commission and several state attorneys, into whether it acted in an anti-competitive manner. Lawmakers also rallied around Congress’ efforts to pass antitrust laws.

Zuckerberg argued that Meta is not a social media monopoly. He angrily pointed to what he calls “unprecedented levels of competition” including TikTok, Apple, Google and future opponents.

But the threat of antitrust action has made it harder for Meta to buy its way into new social media trends.

Translated by Luiz Roberto M. Gonçalves