Meta Suffers Historic Stock Market Slump, While Facebook’s MySpace Moment Seems To Have Arrived
The outlook for Meta is not very exciting.
In the middle of the previous week, Facebook published its results. The least we can say is that the results published by Facebook disappointed the financial markets. These results were significantly lower than expected for Mark Zuckerberg's company, renamed Meta in early fall 2021.
Meta's stock, which was already down 5% from its early 2022 price, lost 26.5% in one session. You read that right, Meta saw its market cap fall by more than $210 billion in a single session:
Meta also broke an unenviable record: that of the largest absolute market cap drop in one session in the history of Wall Street. The previous record belonged to Apple, which had seen its market cap fall by $182 billion on September 3, 2020.
If Facebook's results were as expected as this, it is because they were the first since Mark Zuckerberg decided to pivot his company's strategy towards the Metaverse. Mark Zuckerberg reacted with a certain sense of understatement:
“While our direction is clear, it seems that the road to get there is not perfectly defined.”
Facebook is no longer relevant to young people who now prefer TikTok
At the root of this huge disappointment from investors is a first in the history of Facebook. It is indeed the first time in its history that Facebook has seen its number of users in a quarter fall. Facebook lost 500,000 users in the last quarter of 2021, going from 1.93 billion users to 1.929 billion daily users. You might think that this drop doesn't amount to much in absolute terms, but it reflects a growing problem for Facebook: the increasing irrelevance of Facebook to young people.
Meta didn't report Instagram's user numbers, but daily users across all of its apps barely rose to 2.82 billion, an increase of 10 million users over the third quarter. Disappointing numbers that are cause for concern.
Meta remains largely profitable, but profit is down to $10.3 billion in the last quarter of 2021, while analysts were expecting $10.9 billion.
TikTok has become a problematic competitor for Meta, which is also suffering terribly from Apple's restrictions on ad tracking on iOS since mid-2021. Facebook's challenges seem difficult to solve. The highest-earning users are now on TikTok. Facebook can't aggressively acquire new users, as all eyes of the antitrust authorities are on Meta.
Meta's problem goes beyond social networks, as Reality Labs, the division responsible for the Quest VR headset, VR software, forthcoming AR glasses, and other Metaverse-related initiatives, has lost $10.2 billion in 2021, with revenues only reaching $2.3 billion. When Mark Zuckerberg warned that investing in the Metaverse would cost a small fortune, analysts may not have realized the full extent of what was involved.
Meta's move to switch completely to the Metaverse may well come 10 years too soon, and take the company down completely.
An ominous outlook that makes some imagine a “MySpace moment” for Facebook
The outlook for 2022 seems rather pessimistic, with an estimated revenue of $27 to $29 billion, or “only” 3 to 11% growth for Meta. Any growth below 11% would be the lowest in the company's history. The criticisms and investigations that Facebook will still have to face from American or European regulators will not help the case.
The contrast is striking with another Web giant that gets a huge part of its revenues from online advertising, namely Google. Alphabet has just published historic results with a turnover of 258 billion dollars for 2021, double the turnover of two years ago. Profit has risen to $76 billion in 2021.
If 2022 looks bright for Google, Facebook will have a lot of work to do to reverse the declining trend started in recent months, so much so that some are already talking about a “MySpace moment” for Facebook. Nobody has the answer yet, but it will be interesting to observe in the coming months if Facebook is now destined to fall and be overtaken by its competitors.
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