At one point last week Meta’s share price was down more than 25 percent. The company formerly known as Facebook lost US$240 billion from its market value after publishing its latest results.
Since then it has drifted lower and is down by almost a third on this time a month ago.
Last week’s fall was the biggest single day market value drop in business history. The event saw the Nasdaq index drop two percent.
Not Facebook’s first stumble
We’ve seen Facebook stumble before. This is different.
Growth has slowed. The core product looks jaded. Costs are spinning out of control.
Meta tells an unconvincing story about where it wants to go with the metaverse.
The company is not about to collapse or go away, but it will change. You may not recognise what it becomes.
Competition strikes at Meta’s core
Facebook looked unstoppable. It soaked up a huge slice of the world’s advertising spend, roped off a significant segment of the available online destinations and altered the course of elections.
In comparison Meta looks vulnerable. It faces intense competition on two fronts. The regulatory challenges continue to mount and the leadership does not appear to on top of matters.
Apple’s app-tracking transparency feature was always going to hurt Facebook. If anything, its effect was more pronounced than analysts expected.
Apple’s privacy move
When iOS 14.5 was released last year, Apple gave iPhone users more control over the private information companies like Facebook could track.
To no-one’s suprise, many iPhone users chose not to give consent. As many as three in four have cut off Facebook’s snooping. That undermines Facebook’s pitch to advertisers.
That cost Meta US$10 billion in lost advertising revenue. At 8.5 percent, the figure is getting on for a tenth of Facebook’s annual revenue. More important, it is one quarter of annual profit.
This time it is different
On its own this would be a blip for Facebook. The business has faced similar threats and recovered. However, while this is going on over here, a second front has opened over there. TikTok is eating Facebook’s lunch with young adults.
Increasingly Facebook is the place for old people. Their children and grandchildren prefer the Chinese-owned TikTok app. It now has more than a billion users.
TikTok poses an unusual threat. Because it features short video clips, it sucks up even more attention than Facebook. Facebook’s surveillance capitalism model depends on how much user attention it can grab. TikTok does a better job of this.
You may remember Donald Trump attempting to ban TikTok. When he was president he claimed it was a security threat. The biggest threat it poses is to Facebook.
A third problem is falling user numbers. For the first time the number of daily users on Facebook has fallen.
It’s possible this is temporary. But an equally likely interpretation is that Facebook is losing the allure it once had.
When a product like Facebook is growing, there’s a network effect. As more people climb onboard there are more reasons for others to join. If this goes into reverse, there could be a downward spiral.
You may choose to quit Facebook if the friends you value the most are no longer there.
Meta- washing the toxicity
Part of the reason for changing from Facebook to Meta was to wash away the toxicity associate with the brand. But that’s not the only reason.
Facebook, or Meta, needs to find a path from the immediate and longer term problems it faces.
A switch to being the metaverse company may not be the right strategy, but it is a strategy. It has billions it can throw at research and development. The company plans to invest US$10 billion a year in the metaverse. There are huge resources of smart people, patents and other intellectual property.
Throw enough of these ingredients about and something can emerge. It can come from left field. The Apple Mac emerged from expensive yet wacky-looking research projects carried out by Xerox.
Zuckerberg – the problem that’s hardest to fix
Meta CEO Mark Zuckerberg is at the centre of the problems surrounding the business. His personal reputation is at a low, many see him as a villain. In an another business he might have been replaced, but Zuckerberg controls the board and voting rights.
In part the huge share sell-off was a vote of no confidence in Zuckerberg. He was lucky once turning a website for ranking hot collage girls into a major corporation. Can he do what Steve Jobs managed and repair the business he founded as it enters a new, difficult phase?
What emerges will not be the Facebook you know today. That isn’t going away soon, but its power and influence will diminish. It’s unlikely the metaverse vision that Facebook has outlined will be the answer either.