On Thursday, Meta, the parent company of Facebook, saw its shares plunged 26%, wiping over $252 billion off its market value, in a first of its kind dip for any U.S company.
The company’s chief executive Mark Zuckerberg also lost more than $29 billion of his personal fortune, one of the biggest single-day declines in net worth ever recorded. It is a whirlwind of misfortune stemming from events, antitrust regulations and market headwinds that could be the beginning of a troubled future for the social media conglomerate.
Facebook’s market value’s slump was inspired by four major factors, Apple’s new privacy policy which gives iPhone users the choice to disable the social media platform’s tracking system, curtailing its ability to curate data for targeted ads (Snap avoided that well). Facebook usually harvest the needed data for its targeted ads by tracking users across the web.
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Snap has finally logged its first quarterly profit as the Snapchat maker begins to deftly navigate the seismic shift in digital-advertising sparked by Apple’s privacy policy changes. While Meta — parent company of Snap rival Instagram — said those changes were partly responsible for a disappointing earnings report that sent its stock tumbling, Snap’s earnings report for the final quarter of 2021 suggests the company is adapting to the new environment. Snap’s $22.6 million profit exceeded expectations and sent the company’s stock rocketing more than 50% in after hours trading Thursday.
The second factor comes from European antitrust watchdogs, who have been tightening policies around the use of private data by tech companies. The third revolves around market competition, which has been shifting recently in favor of younger TikTok, a short-form video app that has stolen hearts around the world, particularly, those of young people. And the fourth is apathy toward Facebook, which has built up overtime due to the social media giant’s perceived complicity in the promotion of immorality on its platform. Facebook is said to have chosen profit over morality, riling up series of antitrust cases against the one-time most darling social network platform.
“This isn’t simply a disappointing quarter but rather an existential moment for Meta. Investors will be forced to take a long and hard look at the company’s competitive position and consider whether it isn’t heading into a prolonged period of subpar performance – this will make it hard for the stock to quickly rebound,” says Vital Knowledge founder Adam Crisafulli.
Zuckerberg appeared to have seen this coming. He said last year that Apple’s new App Tracking Transparency (ATT), has the capability to halve Facebook’s 2022 revenue.
Last year, when Facebook announced that it’s changing name to Meta, in line with its metaverse vision, it was seen more as a rebranding move geared toward escaping the controversies that have been attached to the company overtime, than a shift from social networking to a new tech idea. But while the rebranding notion could not be entirely discredited, Zuckerberg had a plan – divest from social networking.
In his statement on Thursday, during Meta’s earning call, the CEO announced seven major investment priorities for 2022: Reels, community messaging, commerce, ads, privacy, AI, and of course the metaverse. He said “if last year was about putting a stake in the ground for where we’re heading, this year is going to be about executing.” But it is far off, expensive, and uncertain, which makes the situation more challenging than he, Zuckerberg would want everyone to believe, even though he referenced the time in the past when Facebook embarked on this types of transitions with mobile feed and Stories.
“We took on headwinds in the near-term to align with important trends over the long term. And while video has historically been slower to monetize, we believe that over time short-form video is going to monetize more like feed or Stories than like Watch – so I’m optimistic that we’ll get to where we need to be with Reels too,” he said.
Among the four factors threatening Meta’s existence, competition with TikTok and Apple’s ATT appear to be among the biggest. Zuckerberg acknowledged the threat in his speech by saying that “People have a lot of choices for how they want to spend their time and apps like TikTok are growing very quickly,” and that “with Apple’s iOS changes and new regulation in Europe, there’s a clear trend where less data is available to deliver personalized ads.” His answer to this threats is Reels.
“And this is why our focus on Reels is so important over the long-term. As is our work to make sure our apps are the best services out there for young adults,” he said, adding that “we’re rebuilding a lot of our ads infrastructure so we can continue to grow and deliver high-quality personalized ads.”
Facebook went public at around $100 billion in 2012, and has posted share gains every year since then, except 2018. The social media company started the year 2022 with a near $1 trillion market capitalization, but has watched it plummets to around $670 billion. A major reason for this is its dwindling users.
Meta revealed that its user growth has slowed, and that Facebook has lost 1 million daily active users, compounding its declining user growth that spanned across other quarters of 2021. The users leaving Facebook are believed to be joining TikTok. Investors who dumped Meta shares were alarmed by the situation, especially TikTok’s intimidating growth.
Advertisers who now have a minimized chance to reach their targeted audience on Facebook due to Apple’s ATT, are shifting to Google. The web search giant has a good relationship with Apple. Google has a deal with Apple to be the default search engine for Apple’s Safari browser. In addition, Google is not heavily dependent on Apple for user data. Meta’s chief financial officer, David Wehner, noted that it’s likely that Google had “far more third-party data for measurement and optimization purposes than Meta’s ad platform.” All these make a massive migration of advertisers from Meta to Google search ads inevitable.
Although Zuckerberg said he believes that over time, short-form video is going to monetize more like feed or Stories, and he is optimistic that Meta will get to where it needs to be with Reels too, it will take quite some time that both investors and advertisers don’t have.
To add salt to injury, Zuckerberg has been pumping money into his metaverse idea, even though its chances of success are quite uncertain. Last year, he poured more than $10 billion on it, and he is expected to spend more in the future.
The only other time Facebook came close to this type of damning reality was in 2018, during the Cambridge Analytica data scandal that saw the social media platform’s shares dived 20%, and later in July when it transitioned from Newsfeed to stories, losing 19% shares. But it bounced back quickly, recovering all the losses within one year. But that was about four years ago. Then, TikTok and Apple’s ATT were not in the way.