Facebook has a TikTok problem: The world’s largest online network hardly gained any new users in the past quarter. Investors were shocked.
The price drop was triggered by the first decline in the number of daily active Facebook users and investors’ disappointment with the sales forecast for the current quarter. After falling 24.8 percent to just under $243, Facebook was still worth around $676 billion in early US trading.
The number of daily active members fell by around one million within three months. In terms of monthly activity, there was a meager increase of two million by Facebook standards.
Founder and boss Mark Zuckerberg referred to competition from the video app Tiktok. “People have a lot of choices about how they want to spend their time – and apps like Tiktok are growing very quickly,” he said in a conference call. The 37-year-old set the direction for his platform to focus even more on short videos from now on.
The group developed its own TikTok counter Reels for this purpose. The new focus will initially put pressure on the proceeds, admitted Zuckerberg. Because Reels ads are less lucrative than, for example, the space in the user’s news feed. But this is the right step for the platform in the long run.
Thursday’s share price drop was a sign that Zuckerberg was failing to convince investors with his assurances that Meta would get the problem under control.
Facebook is starting to catch up from an unfavorable position, warned Forrester Research analyst Mike Proulx. The group not only has to win back young users, but also learn to make better money with the Reels videos. “Simply copying Tiktok’s features will not do.”
The alarm signals were piling up in many areas. A drop in daily active users from 1.93 billion to 1.929 billion may not seem like a big deal. But in the previous quarter, the value had increased by 22 million – and by 30 million in the second quarter of 2021. Facebook also missed the expectations of the experts, who had assumed 1.95 billion daily active users.
The Facebook group Meta also counts how many users use at least one of its apps – including WhatsApp and Instagram. With an increase of ten million to 2.82 billion daily, growth was also unusually low here. In the previous quarter, 50 million had been added.
During the pandemic, Facebook spoiled investors with lavish growth rates. Therefore, the forecast of 27 billion to 29 billion dollars in sales in the current quarter hit particularly hard. Because it means that year-over-year revenue will grow by maybe just 3 percent.
Meta once again referred to Apple’s measures for more privacy on the iPhone, which have been slowing down Facebook business for months. CFO Dave Wehner said it was expected to knock the company’s sales by $10 billion this year.
App providers like Facebook have had to ask iPhone users since last year if they can track their behavior across different services and websites for advertising purposes. Many iPhone customers reject this.
This makes it difficult for Facebook to tailor ads to individual users. However, the central business model of the group is to show ads exactly to the target groups desired by advertising customers. With iPhone users saying no to tracking, it became more difficult for the group to both collect information about user interests and measure the success of advertising campaigns.
The words of the chief financial officer also gave the impression that Meta was investigating a complaint alleging unfair competition. The restrictions are tailored to apps, while in the web browser, for example, search engines still have access to more information for the personalization of advertising, Wehner criticized.
“We think Google’s search ads business may have benefited compared to services like ours,” he said. And the billions that Apple gets from Google each year are an incentive to continue this “discrepancy.” Google pays to be the default search engine in Apple’s Safari web browser. Users can change the search engine at any time.
Meta also released more detailed figures on its virtual reality business for the first time. Over time, this should create the digital world Metaverse, in which Zuckerberg sees the distant future of the group. In the most recent quarter, Reality Labs revenue increased to $837 million from $717 million year over year.
At the same time, the operating loss rose from around 2.1 billion to 3.3 billion dollars. Over the past year, the division accumulated red numbers of more than 10 billion dollars, including for research and development. And CFO Wehner promised that spending will continue to rise this year.
Group sales grew meanwhile in the last quarter year-on-year by a fifth to almost 33.7 billion dollars (29.8 billion euros). The bottom line is that profits fell by eight percent to almost 10.3 billion dollars.
Meta share loses 234 billion dollars market value at the start of trading
With great disillusionment, Meta investors took up the latest quarterly figures and forecasts from the Facebook group and punished the titles. The stock fell in early trading by up to almost 27 percent to $ 237.07 – that was the lowest level since summer 2020. In NASDAQ trading, the paper lost 26.5 percent to $ 237.76.
The stock market value fell from the daily low by around 234 billion dollars to just 645 billion dollars. If it stays that way until the end of trading, it would be the highest loss in market capitalization of a stock in one day, according to data from the Bloomberg news agency. For comparison: The currently most valuable company in the leading German index DAX, Linde, has a market value of around 165 billion dollars.
This increases concerns in the US technology sector, which has been particularly affected by the interest rate turnaround initiated by the US Federal Reserve since the beginning of the year. If the extremely highly rated companies disappoint with their business statements, the prices react with extremely high discounts. This was already evident a few days ago at the streaming company Netflix and now also at Meta.
Facebook’s sheer size, impressive reach and solid balance sheet mean potential over the longer term, but the next few years could be bumpy and expensive, said Hargreaves Lansdown analyst Laura Hoy.
Jürgen Molnar, capital market strategist at broker Robomarkets, put it more drastically: “Numbers and outlook indicate that the group could be on the famous downward slope.” The biggest problem is the dwindling number of users, competitor TikTok is chasing Facebook users. Facebook founder and boss Mark Zuckerberg specifically referred to the competition: “People have a lot of choices about how they want to spend their time – and apps like TikTok are growing very quickly,” he said in a conference call with analysts.
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