The number of users at the Facebook group Meta grew significantly again at the beginning of the year after a slump at the end of 2021. In the first quarter of this year, 1.96 billion users accessed Facebook every day – around 30 million more than three months earlier. The relief among investors was great: the Meta share jumped around 18 percent at the start of pre-market trading on Thursday.
In the previous quarter, the daily number of users had fallen for the first time, by a million to 1.929 billion. Despite the small decline, this was interpreted as an alarm signal. At the time, Meta admitted increased competition from the short video app Tiktok as a key reason. The stock then lost a quarter of its value in one day and then fell even further. Now founder and boss Mark Zuckerberg emphasized the success of the in-house Tiktok copy Reels. For example, on Meta’s Instagram app, users watched Reels videos a fifth of the time, he said in a conference call with analysts. On Facebook, video accounts for half of usage time – and Reels has seen growth there too. Meta is still working on an advertising format for this.
The development of the Metaverse is expensive
Tiktok became popular with the idea of letting software select short videos for users based on their interests. Among other things, the algorithms pay attention to how long you stay with a video before continuing to scroll. Zuckerberg now wants to use such artificial intelligence not only for the personalization of short videos. It should recommend all sorts of content across Meta’s different platforms to users, he said. “I think in the future people will increasingly use discovery machines based on artificial intelligence to entertain them, teach them things and connect them with people with similar interests.” That would be a departure from the original Facebook principle, in which users choose which people, companies or organizations to follow.
At the end of last year, Zuckerberg announced the focus on a future digital world – the Metaverse – and therefore changed the company name from Facebook to Meta. Then came the Tiktok shock. Now Zuckerberg emphasized that the previous services like Facebook and Instagram would have to make enough money to finance the development of the new platform. Short video should be the key for this. At Meta, this is taken care of by the Reality Labs division, which also houses the business with glasses for displaying virtual reality. Thanks to these devices, Reality Labs made sales of $695 million last quarter. At the same time, they posted an operating loss of $2.96 billion due to the expensive Metaverse development.
Overall, things aren’t going as smoothly as they used to. Revenue grew in the first quarter year-on-year by just 7 percent to $27.9 billion. That’s a very low increase for the group – and Meta missed analysts’ expectations. The bottom line is that profits fell by a good fifth to $7.465 billion. For the current quarter, Meta announced sales of between 28 and 30 billion dollars. With a previous year’s value of 29 billion dollars, there could even be a decline in sales for the first time.
The war in Ukraine weakens Meta’s business
Among other things, the group refers to the weakening of business due to the Russian war of aggression against Ukraine. This is not only due to the stoppage of the advertising platform in Russia, but also because concerns about the economic consequences of the war are slowing down advertising customer activity overall. The pressure on the proceeds makes it difficult to implement the plan to finance the Metaverse development with the previous business, emphasized Mike Proulx from the analysis company Forrester Research. Russian authorities had enforced a blockade of Facebook and Instagram because of “extremist activities” in the country. They pointed out that Meta tolerates calls for violence against Russian occupying forces in Ukraine. Technically, Russians can circumvent the block with tools such as VPN tunnels.
Nevertheless, Meta expects that the number of monthly active users in Europe will decrease in the current quarter due to the loss of many users in Russia. CFO Dave Wehner said that might also lead to a decline in the number of users worldwide. At least one app from the meta group, which includes WhatsApp as well as Instagram, was recently used by 2.87 billion users every day. In the previous three months it was 2.82 billion. The group also announced that it would cut costs this year. So far, spending has been estimated at $90 to $95 billion. Meta is now expecting a range of $87 billion to $92 billion.