The Five Reasons Behind Facebook’s Dizzying Fall on Wall Street
#4: Instagram has to chase TikTok, which is much more popular among young people.
This is unprecedented in the history of Wall Street. After the publication of its quarterly results for the last quarter of 2021, Facebook lost 210 billion dollars of market cap in a single session. An unenviable record that Mark Zuckerberg's firm could have done without.
If Mark Zuckerberg's firm is still largely profitable, with a turnover of $40 billion in 2021, various signs lead analysts to believe that Facebook could have reached its peak and is now heading towards its “MySpace moment”.
This is part of the 5 big reasons why Facebook has fallen so dramatically on Wall Street.
1. Facebook no longer grows
When it comes to Tech behemoths, financial markets expect endless growth. In the case of Facebook, the social network founded in 2003 by Mark Zuckerberg has been adding new users continuously... until the last quarter of last year. While the drop was small, as the number of daily users of the social network fell from 1.930 billion to 1.929 billion, the symbol is devastating.
The other subsidiaries of the Meta group are doing a little better, but growth is still slowing down. Group-wide, including Instagram, Messenger, and WhatsApp, daily users only grew from 2.81 billion to 2.82 billion in three months. This is all the more worrying as it is mainly younger people who are losing interest in Facebook and Instagram, in favor of Snapchat or TikTok.
According to a study conducted by the Forrester firm among American teenagers aged 12 to 17, the use of Instagram declined by four points in 2021, from 61% to 57% of weekly users, while that of TikTok increased, from 50% to 63%.
2. Meta suffers from Apple's restrictions on ad tracking
Since spring 2021, Apple has been asking iPhone owners if they agree to be tracked from one app to another. Most refuse. But Facebook's model is based on advertising. The more targeted it is, the more money it is likely to make. Since this change, the ads sold by Facebook have become less accurate. The company is developing other tools to tailor ads to users, but the results are not yet up to par, according to its executives.
3. Mark Zuckerberg's Metaverse bet is far from won
Since the fall of 2021, Meta is betting on the Metaverse, a virtual universe where users would be represented by avatars. The group revealed last Wednesday the results of Reality Labs, its subsidiary dedicated to virtual reality. Last year, this division lost 10 billion. And the group is far from being assured of the result of these investments.
Meta's virtual and augmented reality headset is just one of the possible gateways to the Metaverse. Here's what Mike Proulx, research director at Forrester, thinks:
“It's really about consumer confidence. According to one of our studies, most of them don't trust Facebook, and changing the name doesn't change that.”
This lack of trust in Facebook is problematic. Changing the name to Meta didn't change that.
4. Instagram has to chase TikTok, which is much more popular among young people
The success of TikTok has imposed the format of short videos. A success that the group has sought to replicate with Reels, on Instagram. Users can create videos, add sound or special effects, and share them with their circle of friends and beyond. To make this transition, Meta will not be able to simply not just copy a successful formula, but will also have to innovate. Its managers have also admitted that it is currently more complicated to monetize the time spent on Reels by users. By encouraging them to use Reels, Meta risks lowering its revenues.
5. Meta is in the crosshairs of regulators around the world
Whether it's the U.S. Congress, European institutions, or competition authorities, Meta is under attack from all sides. The effect of some legislation is already felt, said Mark Zuckerberg at a conference with analysts. In particular that of the RGPD. Two texts are in the project, the DSA and the DMA, which could also harm the platform.
Last year, the European and British competition authorities launched investigations against Facebook. In the United States, the Federal Trade Commission is suing Facebook. The authority accuses Facebook of having acquired Instagram and WhatsApp for anti-competitive purposes. Even if there is little chance that this lawsuit will result in a dismantling, it nevertheless represents a headache for Meta.
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