Facebook, now Meta, is the company everybody loves to hate.
With that in mind, it’s easy to see why the events last week brought such delight to many people.
Meta’s market cap dropped by 26%, erasing USD $240 billion worth of value – this was the single most significant market cap drop in history for a US publicly-traded company. Meta CEO Mark Zuckerberg, personally lost USD $29 billion in the collapse.
The Facebook platform is losing popularity.
In 2018, there was an ensemble of younger Americans and Europeans leaving the platform. Back then, that was still okay for the Company’s bottom line because the developing market uptake was expanding much faster than western markets were leaving.
In the earnings report last week, Meta stated that the social network was losing daily active users (DAUs) overall for the first time in its history. The platform’s Indian, African, and Latin American markets are bleeding users.
Younger people in developing markets now go straight to TikTok and Youtube, and in Western markets, Facebook is now seemingly not the destination unless it is being used for messenger, groups, events or stalking.
The main Facebook platform, where most advertising takes place, isn’t why people log on anymore, and with Apple’s move to make ad tracking more difficult, Facebook’s bottom line has taken damage – After all, the Facebook business model is advertising-driven.
It is increasingly likely that Meta won’t generate as much income from Facebook as they once forecasted. This news surprised the market, and unless you didn’t know, markets hate surprises – from there, the Company saw the biggest tumble in history.
Facebook losing popularity isn’t the only reason for the dive; the whole Company is working through many controversies. There’s been significant pressure from regulators and other Government bodies after the harm that Instagram and Facebook causes to teens, which was exposed multiple times by whistleblowers. One report submitted to the US Congress stated that thousands of internal documents shared by former employees outline that the Company knew its products, like Instagram, led to mental health and body-image problems and the Company took zero steps to rectify the issue.
To add to this, Metaverse ventures have already lost the company USD$8.3 billion – and last week’s report revealed that the Oculus Quest headset had lost over $3.3 billion in one quarter, despite revenues reaching $900 million.
Investors would likely want to see some results from a venture into the Metaverse sooner rather than later, and it’s not like there isn’t money to be made. Digital Real estate sales in the Metaverse minted USD$500 million in 2021 and is expected to double in 2022. So to succeed here, the Company will need a big slice of the ever-growing pie.
In addition to this, growth and risk stocks’ glory days may have passed. Overall, the US economy isn’t looking too great; the country just crossed USD$30 trillion in debt. Inflation is rising into record highs, while 70% of GDP last quarter was companies simply hoarding their stock inventories on the back of inflation fears. Additionally, people are quitting their jobs en masse and interest rates are rising.
So, is this the end for Meta?
Hardly. Other Meta subsidies, like WhatsApp and Instagram, are still adding DAUs. The Company also plans to focus on their ‘reels’ to bring in more users and generate future revenue. This recent dive for Meta was most likely a stock market overreaction, and the stock will probably bounce back in no time – but if the company keeps missing earnings targets, things might pan out differently. After all, in June 2021, Meta was worth USD$1 trillion, and now it’s down 35%, but ultimately, it’s way too soon to tell what this could mean.
Trading Desk Assistant at Emerald Financial
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