While some may blame Meta’s decline on CEO Mark Zuckerberg’s obsession with the immersive online world known as the metaverse, that’s just one factor that has helped its stock price plummet 70% over the past year. Other major knocks include the rise of short-form video platform TikTok, Apple’s privacy changes that are hurting ad revenue, and a lack of Gen Z users. “The company literally has one foot in one direction, which is the metaverse, and another foot in short form video trying to compete with TikTok, and it’s not doing particularly well right now,” its Research Director told Yahoo Finance Forrester, Mike Proulx.
The rise of TikTok and the gray Facebook
Meta faces threats from both its own aging user base and the rise of TikTok, a Chinese app with more than 1 billion monthly active users. Key to TikTok’s success is its short-form video format and algorithmically driven For You page, which offers a stream of videos designed to enchant you. As TikTok took off, Meta focused on taking on rival Snapchat by leveraging its ephemeral video capabilities. TikTok continued to refine its algorithm and create a new destination for Gen users. Z. Meta’s attempt to tackle TikTok’s short-form video Reels isn’t catching on with these younger users either TikTok eats Meta’s performance with younger audiences. (Image: Soobum Im-USA TODAY Sports) “We know the meta has a Gen Z problem,” Proulx explained. “Reels’ market share among Gen Z is far below that of the tech-savvy TikTok.” According to Forrester, just 40% of teens between the ages of 12 and 17 say they use Facebook weekly — up from 48% in 2021. 61% of those teens say they use Instagram weekly, and 69% use TikTok. An August Pew Research Center survey found that just 32% of teens use the main Facebook app, while 62% say they use Instagram. TikTok attracts 67% of teenagers. Unfortunately for Meta, TikTok continues to gain traction with both users and advertisers. The story continues “Two years ago it wasn’t clear that TikTok was going to be as dominant as it is,” Julie Biel, portfolio manager and senior research analyst at Kayne Anderson Rudnick, told Yahoo Finance Live. “Somehow they eat [Meta’s] lunch and seeing an economic downturn, we shouldn’t be surprised that advertisers are cutting back on spending [at Meta].”
The economy and Apple are squeezing Meta’s money
The weakened economy is also hammering Meta, which generates the vast majority of its revenue through online advertising. One of the front-line items companies are cutting as part of cost-saving measures is ad budgets — directly impacting Meta’s performance. Meta is also still dealing with fallout from Apple’s ( AAPL ) iOS privacy changes called App Tracking Transparency. The feature, which Apple launched in 2021, allows users to choose whether apps track them on third-party apps and websites. Before the ad market began to dry up, Zuckerberg warned that Apple’s privacy changes would kill digital advertising. Apple CEO Tim Cook has instituted changes to iOS privacy that have taken a bite out of Meta’s results. REUTERS/Andrew Kelly The slowing economy and Apple’s privacy changes combined to make for a bleak two quarters for Meta. In the second quarter of this year, it reported its first year-over-year sales decline — and it reported its second decline the following quarter.
Meta plows cash into a huge bet
Even with slowing revenue growth, Zuckerberg continues to put pressure on the company by directing billions of dollars toward his plans for the metaverse. In 2021, Meta spent $10 billion on its Reality Labs division, which builds the company’s metaverse hardware and software. Meta has already spent more than $9 billion on the project so far this year. During Meta’s recent third-quarter earnings call, CFO Dave Wehner said conversion spending will increase even more in 2023. Those billions will go to fund an effort that people may never sign up for. According to the Wall Street Journal, Meta’s “Horizon Worlds” is, so far, a dud. Meta originally wanted to have 500,000 users on the app by the end of 2022, but dropped that to 280,000. That’s because there are fewer than 200,000 running in the lonely digital domain. In October, Zuckerberg suggested that the metaverse could also become a virtual workplace, but experts remain skeptical of the Meta CEO’s business case for Reality Labs. “They’re trying to convince us that the business use case for VR is really there, and I’ve yet to have someone really explain it to me in a way that the economic model makes a lot of sense,” Biel said. “I don’t think anyone really wants to sit in a VR space and conduct office meetings. They’re already bad enough as they are.” While Meta will cut costs by axing employees, Proulx said the company also needs to rebuild its business plan if it wants to increase momentum. Turning things around at Meta could mean the company chooses between the metabolus that Zuckerberg sees as its future or the social networking apps that made it a giant. Meanwhile, Proulx said: “We predict a bleak 2023 for Meta.” Subscribe to the Yahoo Finance Tech newsletter More from Dan Do you have a tip? Email Daniel Howley at [email protected] Follow him on Twitter at @DanielHowley. Click here for the latest tech business news, reviews and helpful articles on technology and gadgets Read the latest financial and business news from Yahoo Finance
