From a trillion-dollar company in just one year, Meta’s market value has shrunk by as much as 70%. Recently, the company also had to lay off 11,000 employees to cut costs.
Most recently, the company also had to lay off 11,000 employees to cut costs.
Meta’s recent mass layoffs mark a turning point for a company that has had a solid business model for years.
Some investors have blamed CEO Mark Zuckerberg’s obsession with the Metaverse for Meta’s demise, but that’s just one factor in the stock’s 70% plunge over the past year. Other factors include the rise of short video platform TikTok, Apple’s privacy changes affecting advertising revenue and a shortage of young users.
“Meta is not walking in a straight line on two legs, but keeping one foot on the trend of the virtual world, and the other trying to keep up with the emerging app TikTok. This empire clearly has operational problems,” Forrester research director Mike Proulx told Yahoo Finance.
The rise of TikTok and an exhausted Facebook
Meta faces threats from its own aging user base and the rise of TikTok, a Chinese app with more than 1 billion monthly active users.
The key to TikTok’s success is the short video format and algorithm-driven For You page, which provides users with an optimized video stream.
Meta is still preoccupied with taking over Snapchat when the app from China comes out. As TikTok refined its algorithm and attracted Gen Z customers, Meta tried to emulate it with the Reels feature, but it didn’t appeal enough to younger users.
“We know metadata is an issue for Gen Z,” Proulx explained. “Reels’ Gen Z viewership far below TikTok’s market share.”
According to Forrester, only 40% of teens ages 12 to 17 say they use Facebook weekly, down from 48% in 2021. Additionally, 61% of teens said they use Instagram weekly and 69% use TikTok.
An August survey by the Pew Research Center found that only 32 percent of teens use the Facebook app regularly, while 62 percent said they use Instagram. TikTok appeals to 67% of teens.
Unfortunately for Meta, TikTok continues to attract users and advertisers.
Portfolio managers and senior research analysts Kayne Anderson Rudnick and Julie Biel told Yahoo Finance Live: “Two years ago, it was unclear whether TikTok would be as dominant as it is today. Ad investors are moving to more efficient meta platforms.”
The economy and Apple are squeezing Meta’s monetization
The weak economy has also affected Meta, which derives most of its revenue from online advertising. As part of cost-saving measures, one of the first items the company cut was its advertising budget, which directly impacted Meta’s bottom line.
Not only that, but Meta is also looking at the ramifications of Apple’s iOS privacy change (AAPL) called App Tracking Transparency. The feature, introduced by Apple in 2021, allows users to choose whether apps allow them to track them. Before the ad market collapsed, Zuckerberg warned that Apple’s privacy overhaul would kill digital advertising.
A combination of a slowing economy and Apple’s privacy changes led to several poor quarters for Meta. In the second quarter of this year, the company’s sales fell year-on-year for the first time.
Meta is taking its next big gamble
Even as revenue growth slowed, Zuckerberg continued to pressure the company to invest billions in the Metaverse.
In 2021, Meta spent $10 billion on Reality Labs, the company’s Metaverse hardware and software building arm. This year, Meta spent more than $9 billion on the project. During Meta’s most recent third-quarter earnings call, Chief Financial Officer Dave Wehner said that Metaverse spending will increase further in 2023.
These billions of dollars will be used to fund a platform whose users still don’t care much. So far, Horizon World’s version has been a mess, according to The Wall Street Journal.
Meta originally set a goal of having 500,000 Horizon World users by the end of the year, but only 200,000 have actually joined the world of Facebook bosses, The Wall Street Journal reported, citing internal documents.
In October, Zuckerberg suggested that the Metaverse could also become a virtual workspace, but experts remain skeptical about the technology’s viability and differentiation.