The historic slip by Facebook’s owner Meta: Key factors that shook investor confidence

Deepak Gupta
Deepak Gupta February 4, 2022
Updated 2022/02/04 at 11:12 AM

Meta, the parent company of Facebook, saw investors fleeing on Thursday rather than tightening their belts for what could be a long road towards the company’s metaverse vision for the future of the internet. While the tech titan has already seen stocks soar despite fines, regulatory threats, misinformation issues and harassment issues — this time, they’ve plummeted in what one analyst called “a perfect storm.”

Here are the main factors that shake trust in the social media giant:

TikTok for Telegram
Facebook’s growth, which had been on a seemingly perpetual growth trend, dropped late last year as the number of people using the social network declined daily.

Meta executives warned of increased competition, particularly from video star TikTok, as well as messaging services like Telegram and Slack.

The company is prioritizing investment in its short-form video feature Reels, as well as apps like WhatsApp and Instagram to stay in tune with users.

That means spending a lot on services that are harder to make money from than the social network Facebook with its digital ad machine.

apple bite
Meta executives told analysts that Facebook’s ad targeting efficiency is being hampered by a change Apple has implemented in the software that runs iPhone devices.

In the iOS update, Apple required app publishers to ask permission before collecting data, much to the chagrin of companies like Meta, who rely on it for ad targeting.

As iPhone users choose not to share data to target ads in Facebook apps, marketing messages become less precisely targeted and therefore less profitable.

“We believe the overall impact of iOS, as a headwind on our business in 2022, is on the order of US$10 billion (approximately Rs. 74,800 crore),” Meta’s CFO David Wehner said in an results conference call.

“So this is a pretty significant headwind for our business.”

Advertising on Meta also suffered from the broader market as companies slashed budgets in the face of supply issues, labor turnover and pandemic issues.

Meta is facing a “perfect storm” against growth, according to Baird Equity Research analyst Colin Sebastian.

“Our concerns about the short-term growth prospects for Meta have not only been realized, but worse than we thought,” Sebastian said in a note to investors.

bet on the metaverse
Meta chief executive Mark Zuckerberg portrays the metaverse as the future of internet life. In that spirit, the technology company changed its name to “Meta”.

Making the online world of the metaverse immersive is expected to take many years and cost many billions.

A unit of Meta’s “Reality Labs” dedicated to technology for mixing real and virtual worlds posted a loss of $10 billion (approximately Rs. 74,800 crore) last year, according to an earnings release.

Big stock market investors are notoriously averse to waiting too long for big returns, tending to trade stocks based on the potential for quick gains.

regulatory sight
As Meta looks to make a “transformation” to better compete with TikTok, a hit with younger users, regulators in the US and elsewhere have vowed to reduce its power.

A federal judge in January ruled that US regulators’ reworked antitrust case against Facebook can proceed, saying the complaint was more robust and detailed than the version denied in 2021.

The US Federal Trade Commission claimed that Meta holds an illegal monopoly in acquiring potential competitors it now owns, such as Instagram and WhatsApp.

The lawsuit, which can take years to adjudicate without a settlement, called for the “divestment of assets”, including WhatsApp and Instagram, to restore competition.

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