Facebook CEO Mark Zuckerberg testified before the US House of Representatives Financial Services Committee during the Review of Facebook and Its Impact on the Financial Services and Housing Industries at the Capitol Hill hearing in Washington in October. 23, 2019.
Xinhua News Agency | Getty Pictures
A year ago, before Facebook returned Aimthe social media company had a market cap 1 trillion dollarsputting it in rarefied territory with a handful of US tech giants.
Today the landscape looks very different. The meta has lost about two-thirds of its value since the September 2021 peak. stock, lowest Since January 2019 and about to close for the third consecutive quarter of double-digit percentage losses. Only four stocks S&P 500 is having a worse year.
Facebook’s business is built on network effects – users bring in friends and family members who tell colleagues, invite friends. Suddenly everyone gathered in one place. Advertisers watched, and the company’s subsequent profits – and they were plentiful – provided capital to hire the best and brightest engineers to keep the cycle going.
But in 2022, the cycle is reversed. Users jump ship and advertisers are cutting their spending, leaving Meta ready to report its second consecutive decline in quarterly revenue. Businesses are removing Facebook’s once-ubiquitous feature social login button from their own websites. Recruitment is an emerging challenge, especially as a founder and CEO Mark Zuckerberg spends most of its time disseminating metadata that could be the future of the company, but that accounts for almost none of its short-term revenue and costs billions of dollars a year to build.
Zuckerberg aforementioned He hopes that within the next decade, the metaverse will “reach one billion people and host hundreds of billions of dollars in digital commerce.” said In June, CNBC’s Jim Cramer said the “North Star” would reach such figures by the end of the decade and create a “great economy” around digital products.
Investors are not enthusiastic about this, and the way the stock has dropped is causing some observers to question whether the bearish pressure is indeed a bearish one. spiral of death which Meta can’t save.
“I’m not sure there is a core business that works at Facebook anymore,” said Laura Martin of Needham, the only analyst among 45 analysts tracked by FactSet to have a sell rating on the stock.
No one is suggesting that Facebook is at risk of going bankrupt. The company still dominates mobile advertising and has one of the most profitable business models on the planet. Even with a 36% drop in net income last quarter Meta posted a profit of $6.7 billion year-on-year and closed the period with over $40 billion in cash and securities.
The Wall Street problem for Facebook is that it’s no longer a growth story. That’s all that’s known until this year. The company’s slowest year in terms of revenue growth was the 2020 pandemic year, when it still grew 22%. Analysts are predicting a drop in revenue this year.
The number of daily active users in the US and Canada has dropped from 198 million in mid-2020 to 197 million in the second quarter of this year over the past two years. According to FactSet forecasts, globally, user numbers increased by about 10% in this range and are expected to increase by 3% per year through 2024.
“I don’t see a cash flow spiral in the next few years, but I’m worried they won’t win over the next generation,” said Jeremy Bondy, CEO of app marketing firm Liftoff.
Sales growth is expected to remain in single digits for the first half of 2023 before picking up again. But even this bet carries risks. The next generation, as Bondy describes it, is now Migrating to TikTokthat users could create and view short, viral videos instead of scrolling through political rants from distant relatives they accidentally connected with on Facebook.
Meta is trying to emulate the success of TikTok with its short video offering called Reels, which is a big focus on Facebook and Instagram. Meta plans to increase the amount of algorithmically recommended short videos in users’ Instagram feeds from 15% to 30%, and Bondy predicts the company will likely “receive a massive revenue stream from it.”
But Facebook admits it’s the early days of monetizing Reels, and it’s not yet clear how well the format works for advertisers. TikTok’s business remains unclear as the company is privately owned and owned by China’s ByteDance.
Sheryl Sandbergwho To leave After serving as chief operating officer for more than 14 years, the company said on Friday in its final earnings call in July that videos are more difficult in terms of ads and measurement than photos, and Facebook needs to show businesses how to use its advertising tools for Reels.
“I think it’s very promising,” Sandberg said, “but we have some hard work ahead of us.”
Skeptics like Martin see that Facebook is pushing users away from the basic news feed, where it makes tons of money, and towards Reels, where the model is unproven. Martin says Zuckerberg needs to know something important about where the business is going.
“It wouldn’t hurt his income the moment he needed more money, unless he thought the main business was too strong to stand alone,” Martin said. “She must feel like she needs to try to move her audience to Reels in order to compete with TikTok.”
A Facebook spokesperson declined to comment for this story.
Beyond stalled user growth and a slowing economy, Zuckerberg has at least one major cause for concern: Apple.
The 2021 iOS privacy update, called App Tracking Transparency, weakened Facebook’s ability to target users with ads and cost the company an estimated cost. 10 billion dollars income this year. Meta relies on AI-powered ads to eventually make up for Apple’s changes.
This may be little more than a Band-Aid. Online marketing expert and consultant Chris Curtis has seen social networks rise and fall as trends change and users move forward. And this problem cannot be solved with AI.
“I’m old enough and I was there when something happened on MySpace,” said Curtis, who previously worked at his company. Anheuser-Busch and McKinsey. “Social networks can be changed, right?”
Curtis said that when you look at Meta’s user numbers, they suggest that the company is “not in a good position.”
‘Power for good or evil’
The last time Facebook’s market cap was this low was in early 2019, and the company was dealing with the ongoing fallout. Cambridge Analytics privacy scandal. Since then, Facebook has further tarnished its reputation, particularly due to documents leaked last year by the whistleblower and a former employee. Frances Haugen.
The main takeaway from the Haugen saga that preceded the name change as Meta was that Facebook knew most of the harm its products did to children and didn’t want or could do anything about it. Some US Senators Big Tobacco.
Former Facebook employee and whistleblower Frances Haugen testifies at the Senate Committee hearing on Commerce, Science and Transportation titled ‘Protecting Children Online: Testimony of a Facebook Informant’ on Capitol Hill, Washington, USA, on October 5, 2021.
Jabin Botsford | Reuters
Denise Lee YohnThe author of brand-building books like “What Great Brands Do” and “Fusion” said there is little evidence to suggest that Facebook’s rebranding to Meta late last year changed public perception of the company.
“I think the company still suffers from a lot of criticism and skepticism about whether it’s a good or bad force,” Yohn said. Said.
Yohn said rehabilitating a damaged brand is difficult but not impossible. In 2009 he noted: Domino’s Pizza managed to get out of the crisis successfully. A video in April of that year prank It went viral by two restaurant employees and showed someone engaging in disgusting behavior with food while cooking in one of the company’s kitchens. Both employees were arrested and charged with food contamination.
Domino’s in December 2009, “The Return of Pizza.” Stocks rose 63% in the first quarter of 2010.
“We’ve been told that our pizzas suck, so we’re actually going to make significant changes to what we offer and change people’s perceptions,” Yohn said of the company’s approach. While it might seem like “just marketing talk” at first, “they’ve actually really changed,” said Yohn.
Zuckerberg, on the other hand, “doesn’t come across as a serious leader in creating a company that is serious about changing its culture and changing itself, and that can step into the future he envisions.”
Meta’s reputational success may also undermine the company’s ability to recruit top talent; this is in stark contrast a decade ago, when there were no more award-winning landing spots for a hot engineer.
Speaking on condition of anonymity, a former Facebook ad executive told CNBC that even though TikTok is owned by a Chinese parent, it now has a better recruiting advantage over Meta because it’s seen as less “moral”. disadvantage.”
Ben ZhaoA professor of computer science at the University of Chicago, he said he’s seen the game take the field as a growing number of students in his department show interest in working for TikTok and ByteDance.
Given how the market has penalized tech stocks this year, Zhao said Meta and Google “It has to pay more and it definitely has to distribute more lucrative stock options and packages.”
bull case
Jake Dollarhide, CEO of Longbow Asset Management in Tulsa, Oklahoma, said Zuckerberg nonetheless has a history of proving his skeptics wrong.
Dollarhide recalls investors shunned Facebook shortly after its 2012 IPO, downplaying the company’s ability to move “from the PC to the mobile world.” Facebook’s mobile business quickly caught fire, and in late 2013 stocks were racing.
Zuckerberg’s success with the move to mobile gives Dollarhide confidence that Meta can make money from his bet on the farm move. In the second quarter, Meta’s Reality Labs division, which hosts virtual reality headsets and related technologies, revenue of $452 million (approximately 1.5% of total Meta sales) and lost $2.8 billion.
“I think Zuckerberg is very bright and very ambitious,” Dollarhide said. “I don’t bet like I don’t bet on Zuckerberg. elon musk“
Dollarhide’s firm has not owned Facebook shares since 2014, preferring the trajectory of tech companies like Apple and Apple. Amazontwo of its largest holdings.
“The truth is, they can be perceived as a value company, not a growth company,” Dollarhide said of Meta.
Zuckerberg made it clear that whatever happens in the next one or two or even three years, the company’s future is in the meta-universe where it invests in new businesses shaped around virtual reality.
Zhao of the University of Chicago says there is tremendous uncertainty surrounding the prospects for the metaverse.
“The real question is – are everyday users ready for the metastore yet?” said Zhao. “Is the underlying technology ready and mature enough to make this transition smooth? That’s a real question and may not be entirely dependent on Facebook or Meta at this point.”
If Zuckerberg is right, perhaps 10 years from now Meta’s stock price in the depths of 2022 will look like the discount of the decade. And if that happens, the predictions of the death spiral will be as mocked as in 2012. Barron’s cover story, headlined “Facebook is worth $15” with thumbs down. Four years later, it was trading around $130.
TO WATCH: Needham’s Martin is a Meta skeptic
