6 Reasons Meta Is in Trouble

Meta, a company formerly known as Facebook, suffered its biggest one-day crash ever on Thursday as its stock fell 26 percent and its market value fell to more than $ 230 billion.

It crashed following a disappointing earnings report on Wednesday, with chief executive Mark Zuckerberg explaining how the company was navigating a difficult transition from social networking to a virtual world called Metavers. On Thursday, one company continued to make statements from its earnings announcement and declined to comment further.

Here are six reasons why meta is in a difficult place.

The salad days of Facebook’s Wild User Growth are over.

The company on Wednesday reported a modest increase in the number of new users in the family of its so-called apps – including Instagram, Messenger and WhatsApp – its core Facebook social networking app lost nearly half a million users in the fourth quarter compared to the previous quarter.

This is the first such decline for the company in its 18-year history, during which time it was practically defined by its ability to bring in more new users. Deep indicates that the core application may have reached its peak. Meta’s quarterly user growth rate was also the slowest in at least three years.

Meta executives have pointed to other growth opportunities, such as the launch of Money Facet on WhatsApp, a messaging service that has yet to generate significant revenue. But those efforts are newborn. Investors are now likely to investigate whether Metani’s other apps, such as Instagram, could start to reach their peak on user growth.

Last spring, Apple introduced the “App Tracking Transparency” update to its mobile operating system, which essentially gives iPhone owners a choice as to whether they will allow apps like Facebook to monitor their online activities. This privacy measure has now hurt Meta’s business and is likely to continue.

Now that Facebook and other apps must explicitly ask people for permission to track their behavior, many users have opted out. That means less user data for Facebook, which targets ads – one of the company’s main ways to make money – is more difficult.

Twice as painful is the fact that iPhone users are a more lucrative market for Facebook’s advertisers than Android app users. People who use iPhones to access the Internet usually spend more money on products and apps offered to them by mobile ads.

Meta said Wednesday that Apple’s changes would cost it 10 billion in revenue next year. The company has protested Apple’s shift, saying it is bad for small businesses that rely on advertising on social networks to reach customers. But Apple is unlikely to reverse its privacy changes, and Meta shareholders know that.

Meta’s troubles are good luck for its competitors.

On Wednesday, David Wehner, Meta’s chief financial officer, noted that Apple’s changes have given advertisers less visibility into user behavior, with many starting to shift their advertising budgets to other platforms. I.e. Google.

In Google’s Earnings Call this week, the company reported record sales, especially in its e-commerce search ads. It was the same category that tripped Meta in the last three months of 2021.

Unlike Meta, Google does not rely heavily on Apple for user data. Mr. Wehner said Google is likely to have “more third-party data for measurement and optimization purposes” than Meta’s advertising platform.

Mr. Wehner also pointed to Google’s deal with Apple to become the default search engine for Apple’s Safari browser. This means that Google’s search ads appear in more places with more data that could be useful to advertisers. This is a big problem for meta in the long run, especially if more advertisers switch to Google search ads.

For more than a year, Mr. Zuckerberg points out how formidable TikTok is as an enemy. The Chinese-backed app has grown to more than a billion users due to its highly shareable and oddly addictive short video post. And she’s competing with Metana’s Instagram for eyeballs and attention.

Meta cloned TikTok with a video product feature called Instagram Reels. Mr. Zuckerberg said Wednesday that the reels, which are mainly placed in people’s Instagram feeds, are currently no. 1 driver of attachment in the whole application.

The problem is that while Reels can attract users, it doesn’t make as much money as other features of Instagram, such as Stories and main feeds. The reason is that making money from video ads is slow, because people tend to leave it. This means that the more Instagram forces people to use reels, the less money they can make on those users.

Mr. Zuckerberg compared the situation many years ago to the same time when Instagram released its Stories feature, a clone of Snapchat. That product did not do well for the company when it debuted, although advertising dollars eventually followed. However, there is no guarantee that Instagram Reels can repeat that magic.

Mr. Zuckerberg believes that the Internet is the next generation of metavars – a still obscure and theoretical concept in which people move around in a variety of virtual- and augmented-reality worlds – that he is willing to spend heavily on it.

So big that last year the cost was more than $ 10 billion. Mr. Zuckerberg expects to spend even more in the future.

There is no evidence yet that the bet will pay off. Unlike the shift on Facebook’s mobile devices in 2012, the use of virtual reality is still a province of exclusive hobbies and has not yet really broken into the mainstream. Extensive augmented-reality headsets are also months – if not years – away.

In essence, Mr. Zuckerberg is urging employees, users and investors to have faith in him and his metavers vision. It is a huge demand for something that will cost the company billions in the coming years and will never bear fruit.

Regulators in Washington are threatening Mr. Zuckerberg’s company is a headache that will not go away.

Meta is facing multiple investigations, including the new aggressive Federal Trade Commission and multiple state attorneys general, into whether he has acted anti-competitive. Legislators have also rallied around Congress’ efforts to pass no-confidence bills.

Mr. Zuckerberg has argued that meta is not a social networking monopoly. He pointed to what he called “unprecedented levels of competition”, including Tiktok, Apple, Google and other future rivals.

But the threat of no-confidence action has made it more difficult for Meta to buy its way into new social networking trends. In the past, Facebook bought Instagram and WhatsApp with little scrutiny because those services gained billions of users. Now some less controversial acquisitions of meta in virtual reality and GIF have also been challenged by regulators globally.

Since the deal is unlikely to happen, Meta has the responsibility to innovate the way out of any challenges.

In the past, Mr. Zuckerberg may have been given the benefit of the doubt that he could do so. But at least on Thursday, confidence on Wall Street was low.

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