For the first time in Facebook’s 18-year history, the platform recorded a drop in Daily Active Users (DAU) from 1.93 billion to 1.929 billion. Although the fall in DAU might seem so small, it could be a rounding error; this news sent Facebook’s share price falling over 25%, wiping out about $251 billion in market value, the largest single-day equity wipeout EVER. The CEO of Facebook, Mark Zuckerberg, saw his net worth fall by $29 billion.
Facebook has been plagued with privacy scandals, government crackdowns, and user distrust. In a bid to rebrand, the group that owns WhatsApp, Instagram, Messenger, and of course Facebook changed its name to Meta last year. Amidst all these scandals, Facebook has maintained its position as the number 1 most used social media platform. This position has earned it top dollar in advertising revenue. However, that changed in 2021.
In April 2021, Apple made some software privacy changes that affected how platforms like Facebook tracked users and targeted them with adverts. Meta estimated that this decision alone could cost them $10 billion in revenue as they can only make top dollar from advertisers when they can track user data fully. While they were trying to grapple with that, macroeconomic conditions such as rising inflation in the US and global supply chain disruptions also weighed on advertisers’ budgets, limiting the amount of money they could spend on advertisements.
Even with all of this turmoil, Meta still managed to outperform analysts’ expectations for revenue. The company reported revenue of $33.67 billion for Q4 2021, despite analysts predicting revenue to be $33.4 billion. The biggest shocker for investors was the fall in daily active users. Meta’s CEO, Mark, pointed to the competition from TikTok being the reason for the drop in DAU.
However, it was the company’s forward guidance that led to the share price’s nosedive. Meta warned that revenue in the first quarter of 2022 will be $27 billion to $29 billion, the slowest period of growth on record. Analysts were expecting $30.15 billion in revenue, according to Refinitiv. The drastic fall in share price reflects how unclear the future for Meta seems beyond new competition from TikTok, privacy, and macroeconomic concerns.
In the past, Facebook had overcome challenges to its hegemony in social media by acquiring its competition like Instagram and WhatsApp, and when they couldn’t, they resorted to copying the feature that made the app special, as in the case of Snapchat. Meta has taken the latter approach by cloning TikTok with its short-form video feature called Reels. This feature is not much profitable in terms of advertising revenue as advertisers pay less for ads placed in video feeds than those placed in news feeds or stories.
Investors are looking at the bigger picture. Could the writing on the wall be spelling the end of Facebook’s reign? Could they lose the war for users’ attention? One thing is for sure; Meta will not be going down without a fight.
Zuckerberg is seeking to diversify Meta’s revenues beyond advertising. But some of its efforts on that front have proven futile. Last week, a Facebook-led initiative to launch a global digital currency, Libra (formerly Diem), was abandoned after facing regulatory hurdles. Now, Mark has shifted his gaze to the metaverse, an immersive virtual world supported by virtual and augmented reality technology. However, he warned last quarter that the investment in the metaverse is not going to be profitable for investors any time soon. In 2021, the meta business posted a full-year operating loss of $10.2bn.
Analysts seem to agree that the 25% single-day drop in the market value of Facebook was an overreaction, and it’s likely that the stock would recover some of those losses in time. However, the longer-term outlook might be grim for Facebook. Could this be the beginning of the end for the social media giant, or could they find new life in the metaverse? Only time will tell.