As people leave and revenue drops, Facebook tries to stabilize its stock. Before Facebook went Meta a year ago, the social networking company’s market worth was $1 trillion, making it one of only a handful of U.S. technology titans to ever reach such lofty heights.
It’s a very different scene than it was yesterday. Since its highest point in September 2021, the value of Meta has dropped by around two-thirds. The company is likely to close off its third consecutive quarter of double-digit percentage losses and is trading at its lowest level since January 2019. Out of the equities in the S&P 500, just four have performed worse this year.
The success of Facebook may be directly attributed to the network effects it generates: users invite their friends and family, who in turn invite their friends and coworkers. Almost instantly, everyone gathered in one central location. The company attracted advertisers, and with the resulting wealth, it was able to hire the most talented programmers and keep the cycle running.
The cycle was supposed to begin again in 2022, however, it actually began in 2022. Since users are departing and advertisers are cutting back, Meta is likely to post a quarterly revenue decline for the second quarter in a row. The once-ubiquitous Facebook social login button is being phased out by businesses. New difficulties in hiring have arisen as CEO and creator Mark Zuckerberg devotes much of his time to evangelizing the company’s long-term vision of a metaverse that will generate almost no money in the short term while spending billions annually to develop.
By the end of the next decade, according to Zuckerberg, the metaverse will have attracted a billion users and hosted hundreds of billions of dollars worth of digital trade. As he explained to CNBC’s Jim Cramer in June, the “North Star” is to attain those sorts of figures by the end of the decade and develop a “huge economy” around digital goods.
Investors aren’t thrilled about it, and the rapidity with which they’re selling their shares has led some to wonder if the company is in a terminal death spiral.
Among the 45 analysts tracked by FactSet, only Laura Martin of Needham has a sell rating on the company, saying, “I’m not sure there’s a core business that works anymore at Facebook.”
The possibility of Facebook’s demise is not being seriously considered by anyone. Even now, the company is unrivaled in the mobile advertising market, and its business strategy is among the most lucrative in the world. Even though quarterly net income was down 36% from the preceding year, Meta still managed to earn $6.7 billion and complete the period with over $40 billion in cash and marketable securities.
Facebook’s lack of further expansion is causing it to lose favor on Wall Street. That’s all anyone ever knew about it before this year. Even under the worst-case scenario of a global pandemic occurring in 2020, sales for the corporation increased by 22%. Income is expected to decrease this year, according to analysts.
From 198 million in mid-2020 to 197 million in the second quarter of this year, the number of daily active users in the United States and Canada has decreased. Statistics show a worldwide increase of roughly 10% in users over that time period, with a further annual increase of 3% predicted through 2024, as reported by FactSet.
Jeremy Bondy, CEO of app marketing company Liftoff, said, “I don’t see it spiraling in terms of cash flows in the next few years, but I’m just scared that they’re not winning the next generation.”
Until the second half of 2023, sales growth is predicted to remain in the low single digits. However, there are still dangers associated with that wager. Instead of reading political rants from distant relatives with whom they accidentally linked on Facebook, Bondy says the next generation is switching to TikTok, where they can make and watch short, viral videos.
Meta’s short video offering, Reels, has been a significant focus on Facebook and Instagram in an attempt to replicate TikTok’s success. Based on Bondy’s predictions, Meta will “receive significant revenue flow from that” algorithmic shift if it succeeds in increasing the percentage of algorithmically recommended short videos in users’ Instagram feeds from 15% to 30%.
Facebook admits that the company does not yet know how well the Reels format performs for advertisers and that monetizing the feature is still in its early stages. The operations of TikTok are unknown due to the fact that the company is privately held and controlled by ByteDance of China.
During her last earnings call in July, Sheryl Sandberg, who is leaving the firm on Friday after nearly 14 years as COO, noted that videos are more difficult than images in terms of marketing and measurement and that Facebook needs to teach businesses how to use the ad tools for Reels.
However, Sandberg acknowledged that “we have some hard work ahead of us” despite the positive outlook she saw.
Those who are skeptical, like Martin, worry that Facebook will drive users away from the profitable main news stream and onto the unproven Reels feature. Martin theorizes that Zuckerberg must be aware of some crucial information regarding the company’s future.
Martin reasoned that “he wouldn’t be damaging its revenue at the same time he needed additional money” unless the company’s “core business” was not strong enough to stand alone. To compete with TikTok, “he must feel he has to try to migrate his viewership to Reels.”
An official Facebook spokesman declined to comment for this article.
Not only has Zuckerberg’s user growth slowed, but the economy is also faltering, and Apple is a big reason for concern.
Facebook lost an estimated $10 billion in revenue this year as a result of the 2021 iOS privacy upgrade known as App Tracking Transparency. Meta anticipates that AI-driven advertisements will eventually make up for Apple’s adjustments.
That might be a temporary fix at best. Chris Curtis, an expert, and consultant in digital marketing has seen several social media platforms come and go as fads and consumer preferences shift. And artificial intelligence can’t fix it.
“I’m old enough and I was there when MySpace was a thing,” said Curtis, a former employee of Anheuser-Busch and McKinsey. As in, “Social networks can be changed, right?”
According to Curtis, “not in a good position” is how Meta’s user figures read.
Impact, whether positive or negative
When Facebook’s market cap was last this low, it was in the early months of 2019 and the corporation was still reeling from the effects of the Cambridge Analytica privacy crisis. The data that was revealed by whistleblower and former Facebook employee Frances Haugen last year have done even more damage to Facebook’s reputation since then.
The Haugen incident, which occurred before Facebook changed its name to Meta, mostly taught us that Facebook was aware of the harm its products brought to children but did nothing to address them. Legislators in the United States have likened the corporation to the tobacco industry.
Author of “What Great Brands Do” and “Fusion,” Denise Lee Yohn, claims that the public hasn’t changed their minds about Facebook despite the company’s late 2017 rebranding to Meta.
The question of whether Facebook is a beneficial or bad influence is one that “the corporation still suffers from a lot of criticism and suspicion over,” Yohn added.
The process of restoring a tarnished brand, as Yohn put it, is challenging but not impossible. As she pointed out, Domino’s Pizza had a successful comeback in 2009 after experiencing a crisis. In April of that year, a hoax video created by two workers at a restaurant went viral; it showed one of the workers engaging in a series of vile practices with food while in the workplace. Both workers were detained and accused of poisoning the food supply.
Domino’s “Pizza Turnaround” advertising campaign debuted in December 2009. In the first three months of 2010, the share price increased by 63%.
Company strategy, according to Yohn: “We’ve been told our pizzas suck, and therefore we’re genuinely going to make substantive adjustments to what we are offering and change people’s attitudes.” As Yohn put it, “they actually genuinely did change,” even if it sounded like “just marketing jargon” at first.
She argues that Zuckerberg is not “coming across as a leader who is serious about changing his culture and about changing himself and about kind of establishing a firm that will be able to walk into the future that he’s imagining.”
As a result of the damage to Meta’s reputation, the firm may find it more difficult to attract top-tier talent than it did a decade ago when it was the most sought-after place to work for a talented engineer.
Although TikTok is controlled by a Chinese company, a former Facebook ad executive who spoke to CNBC on the condition of anonymity said that the app is now more attractive to recruiters than Meta due to its perceived lack of a “moral drawback.”
A growing number of students in Ben Zhao’s computer science department at the University of Chicago have expressed an interest in internships and full-time positions with TikTok and ByteDance, Zhao said.
To remain competitive as the market has penalized IT stocks this year, Zhao claims that both Meta and Google “are having certainly to disburse more lucrative stock options and packages.”
There’s reason to believe the bull case
But, as Tulsa, Oklahoma, CEO of Longbow Asset Management Jake Dollarhide put it, “Zuckerberg has a history of proving his naysayers wrong.”
Dollarhide recalls that back in 2012, shortly after Facebook’s IPO, investors fled the firm, laughing at its inability to transition “from the PC to the mobile environment.” By late 2013, Facebook’s mobile business had exploded, sending the stock soaring
In light of Facebook’s recent success after making the switch to mobile, Dollarhide is optimistic that Meta will reap financial rewards from its calculated risk in moving to the metaverse. Reality Labs, where Meta keeps its virtual reality headsets and related technology, lost $2.8 billion in the second quarter on sales of $452 million (approximately 1.5% of total Meta sales).
“I think Zuckerberg is very intelligent and very ambitious,” Dollarhide said of Zuckerberg. Similarly to how I wouldn’t wager against Elon Musk, I wouldn’t wager against Mark Zuckerberg.
The Dollarhide organization has not held the Facebook stock since 2014, instead favoring the growth of Apple and Amazon, two of his main investments.
“They might be seen as a value firm and not a growth company,” Dollarhide said of Meta.
Zuckerberg has made it plain that the company’s future lies in the metaverse, where he is betting on new businesses forming around virtual reality, regardless of what happens in the next year, two years, or three years.